Tax Education Series #6: Tax Benefits for Students (or for anyone taking classes)

Hello everyone,

We all want to learn something new or acquire new skills, right? Did you know that there are generous tax benefits for students or for anyone who wants to take classes?

There are three main benefits available:

1. The American Opportunity Tax Credit
2. The Lifetime Learning Credit
3. Deduction for Higher Education Expenses

Let's explore each one:

The American Opportunity Tax Credit : this is the best one of the lot, as it gives you up to $2,500 in annual tax credit. It provides 100% tax credit for the first 2,000 dollars of a student's qualified education expense, and 25% for the next 2,000. Qualified expenses include tuition, books, mandatory fees, and computer equipment (sorry, room and board are not qualified expenses!). Also, you can claim this credit for a dependent who is a student as well as for yourself and your spouse. Here is the best part: you can get up to 2,500 dollars in credit for EACH student in a family. Sounds great, right? It is, if you meet the following requirements:

• Credit is allowed only for undergraduate students who have not yet completed four years of college (as of the beginning of the year).
• The classes must be in a program that provides an associates or bachelors degree (or a widely recognized credential)
• Course load must be at least at half-time for a minimum of one semester

For those who do not qualify, the next option is:

Lifetime Learning Credit : this credit is up to $2,000 (based on 20% of a maximum of 10,000 dollars in qualified education expenses). Also, it has more flexible requirements to qualify:

• This can be used for both undergraduate and graduate level classes
• limited course load is ok
• classes need not be part of a program that leads to an official school degree

A few notes: the maximum $2,000 tax credit is capped, regardless of how many students are in the household. Also, one cannot claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student. Finally, there are income phase-out rules, meaning that the credits will be reduced (to zero if necessary) if your income exceeds certain thresholds.

Deduction for Higher Education Expenses : finally, you have the tax deduction of up to 4,000 dollars for qualified education expenses. This one is a deduction, meaning that it will reduce your taxable income (but not a dollar-for-dollar reduction of the tax bill, like the tax credits above). Nonetheless, it is still a valuable benefit.

Tax rules can be a bit tricky, as there are no double-dipping rules, income phase-outs, and other requirements (such as what happens if you received grants or scholarships, or you were interested in classes involving sports, games or other hobbies, etc).

If you are not sure about something, as always, I am here to help. Feel free to reply with your questions and I will guide you in the right direction. Thanks for reading!

About the Author : I am a cryptocurrency enthusiast and a U.S. Certified Public Accountant with over 15 years of experience in accounting, taxation, and finance.

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If you like this education series, please follow me @qwesttexas. I am here to help the Steemit community with tax questions and break down confusing tax jargon into plain English so that we can all benefit from it. Let's go Steem!