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Textbook Tax Credits

This is a public service announcement for any students, or parents of students for that matter, looking for a little extra break this tax season. I know you’re just getting ready for exams but we just wanted to remind you all that in addition to selling your old textbooks back at the end of your semester, and buying textbooks early the easiest way to save money on education costs is to take advantage of tax credits come income tax season. Both the American and Canadian governments have tax credits available for students, and here are some details.

American Students:
For the years 2009-2012, the American Opportunity Tax Credit has been unveiled in the United States. It allows students to receive up to a $2,500 tax credit on the out-of-pocket cost of tuition and related expenses which include required course materials (ie: Textbooks).

TextbooksThe basic eligibility criteria are:
– You can be eligible for the first four years of college
– Credit is only available where no other financial grant aid covers
– 100% of the first $2,000 and 25% of the next $2,000
– 40% of the credit is refundable with the maximum refundable amount of $1,000
– Phase-out for taxpayers with adjusted gross income in excess of $80,000 or $160,000 for married
couples filing jointly (AGI phase out limits are $90,000 individual, $180,000 married couples filing jointly)

The website Textbookaid.org provides an example:
If you or your student has out-of-pocket course material expenses or tuition and fees during 2010 or 2011 and no other financial grant aid covers those expenses, you will be able to claim the expenses as a credit. For each student the credit is limited to $2,500.

Let’s say your federal tax liability for 2010 is $2,000 before the American Opportunity Tax Credit and your student had $5,000 in allowable higher education expenses. The first $2,000 in out-of-pocket textbook purchases, tuition, and fees goes towards your tax credit at 100%. Everything over that is allowable at 25% up to a total credit per student of $2,500. You would have a credit of $2,000 plus $500 of the remaining $3,000 (25% of the expenses over $2,000 up to an extra $500 credit). Because this credit is partially refundable, the $2,500 credit results in a refund of $500! If your 2009 tax liability is zero and your student’s textbook credits were $2,500, you can receive a refund of $1,000 because the credit is 40% percent refundable (.40 x $2,500 = $1,000).

Canadian Students:
The Canadian government doesn’t have any new or special programs running but as always you can reduce your taxable income by up to $65 for ever month you are a full time student by presenting receipts from textbooks purchased. You should be able to find complete details on eligibility on this page of the Canada Revenue Agency site.

Clear as mud?

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