Knowing how to handle taxes wisely can make all the difference when it comes to scholarships, loans, and other elements of college funding. Tax credits are frequently more valuable than tax deductions because credits reduce your tax bill dollar-for-dollar, while deductions only reduce your taxable income.
Fortunately, there’s more to taxes than what you owe – many times there are education-related credits you can claim as well.
The Lifetime Learning Credit differs than the American Opportunity Tax Credit (AOTC) in several ways. The student doesn’t have to be enrolled full-time, and it can be claimed beyond the first four years of school. A felony conviction also doesn’t impact your ability to claim it.
Ready to discover more? Here are four key things to know about the Lifetime Learning Credit.
Can I Claim a Lifetime Learning Credit?
The qualifications for the Lifetime Learning Credit (LLC) are far more permissive than the AOTC. In order to qualify for the Lifetime Learning Credit, you must have made tuition and fee payments to a post-secondary school (after high school) during the year.
Any accredited school qualifies, and you don’t have to be working toward a degree as long as what you’re learning improves your job skills. There are a few limitations – for instance, there are income limits on who can claim the LLC.
If your modified adjusted gross income (MAGI) is below $55,000 ($110,000 for a joint return), you are eligible for the credit. If your MAGI is between $55,000 and $65,000 ($112,000 and $130,000 if you file a joint return) you’ll get a lower amount. Above that, you are not eligible for a Lifetime Learning Credit.
How Much is the Lifetime Learning Credit?
The Lifetime Learning Credit allows you to claim a tax credit of 20% of the first $10,000 you pay in tuition or other costs required for enrollment. Thus, the maximum per year is $2,000.
It’s important to note that the Lifetime Learning Credit is for all education expenses total, not per student.
The only costs that qualify are tuition and fees. Books, supplies, equipment and other costs do not qualify for the LLC.
Can I Claim a Lifetime Learning Credit Along With Other Education Credits?
Everyone loves a break on taxes, but it’s important to claim the credits correctly to avoid a correction or problem with your return.
If you claim the LLC for one student, you cannot claim the AOTC for the same student that year. However, if you have multiple students, you can claim the AOTC for one or more and the LLC for the others.
Generally, the AOTC is the preferred credit. However, if your student doesn’t qualify, the Lifetime Learning Credit is the second-best option.
As of right now, the tuition and fees tax deduction is not available for 2018, but only for tax year 2017. You have to choose between that deduction and the Lifetime Learning Credit.
How Do I Take Advantage of the Lifetime Learning Credit?
Using the Lifetime Learning Credit requires you to get a tax form from the school your student is attending. The form is 1098-T, and you may receive it through the mail or it might be available online.
From there, you add IRS Form 8863 to your tax return. This form allows you to calculate both the American Opportunity Tax Credit and Lifetime Learning Credit.
Remember, any tuition you paid for education is eligible. Did you or your spouse take one class to develop professional skills or work toward a degree? Be sure to claim the Lifetime Learning Credit for that expense.
You can use the American Opportunity Tax Credit for students in your family that are in their first four years of college and meet the other qualifications, and the Lifetime Learning Credit to get up to $2,000 total for other students.
Keep Your Costs for College Down
Taking advantage of tax credits is a great way to recover some of the money you invest in education. It may feel like a small amount considered to what you pay, but it’s still cash in your wallet!
Remember, the Lifetime Learning Credit may apply where other options do not. It can be a great way to reduce the amount you owe each year.
The real way to keep college affordable, of course, is to find colleges that are generous with free money such as scholarships. Finding these details yourself takes hundreds of hours and you can still miss something.
Give yourself peace of mind and don’t miss a thing. Get the College Free Money Finder today!
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