Question

Which of the following statements concerning educational tax credits and savings opportunities is correct?

A. The Lifetime Learning Credit is equal to 10% of qualified educational expenses up to a certain limit.
B. The American Opportunity Tax Credit (AOTC) is only available for the first 3 years of postsecondary education.
C. A parent who claims a child as a dependent is entitled to take the AOTC credit for the educational expenses of the child.
D. The contribution limit for Coverdell Education Savings Accounts is applied per year per donor.

Answer 1

The correct statement is that a parent who claims a child as a dependent can claim the American Opportunity Tax Credit for educational expenses. The LLC is equal to 20% of qualified expenses. Option C is correct answer.

Step-by-step explanation:

Concerning the statements provided about educational tax credits and savings opportunities, the correct option is C: A parent who claims a child as a dependent is entitled to take the American Opportunity Tax Credit (AOTC) for the educational expenses of the child.

The AOTC is indeed a credit that helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit brings the amount of tax owed to zero, you can have 40% of any remaining amount of the credit (up to $1,000) refunded to you.

Now to correct the incorrect options provided: A) The Lifetime Learning Credit (LLC) is equal to 20% of qualified educational expenses, not 10%, up to a limit of $2,000 per tax return. B) The AOTC is available for the first 4 years of postsecondary education, not just the first 3 years.

D) Contribution limits for Coverdell Education Savings Accounts (ESAs) are applied per beneficiary, not per donor, unlike the statement suggests. For example, if a child receives contributions to their ESA from multiple family members, the total of all contributions cannot exceed the contribution limit.