Most moms and dads out there know that child care and preschool costs are tax deductible. But, did you know that when you head back to class some of your educational expenses can also lower your tax bill?
For the 2016 tax year there are two tax credits you can take advantage of as you file your taxes:
the American Opportunity Credit and the Lifetime Learning Credit.
The American Opportunity Credit – Students, parents and third parties who paid the education bill can claim up to $2,500 for adjusted qualified education expenses for each student who qualifies.
To qualify, students must be enrolled in a program that results in a degree or educational credential and must be enrolled at least half-time for at least one academic period that begins during 2016 (or the first 3 months of 2017 if the qualified expenses were paid in 2016).
The credit can be used for tuition, enrollment fees and required course materials and can only be claimed for four years. Finally, the student must not have been convicted of a felony for possessing or distributing a controlled substance.
Lifetime Learning Credit – This credit is different because the tax payer can only claim up to $2,000 in educational expenses per year, however, they can claim this credit as many years as they want.
Also, while the American Opportunity Credit requires students to work towards a recognized degree, the Lifetime Learning Credit can be enrolled in a class that will result in a degree or improve their job skills.
The Lifetime Learning Credit does have income limits in order to claim it: $65,000 or less for individuals and $131,000 for married couples.
IRS rules allows the individual who paid the tuition, and who is then claiming the credit, to only claim one credit for each student, per year. However, if you have multiple students in school, you can claim one credit per each student.
The languager of the two credits can be confusing. To get the most from your tax credits it is always best to call the IRS directly or consult a tax professional. However, the IRS did leave a giant tip on their website, in bold type, for those trying to choose between the two credits.
It states, “If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit.”
For complete details, visit the IRS website at: https://www.irs.gov/publications/p970/ch02.html