Which Education Deduction/Credit Works Best for You?

When thinking about education expenses when filing your 2015 tax return there are basically 3 options. There are two tax credits available to those who have paid expenses for higher education in 2015. They are The American Opportunity Credit and the Lifetime Learning Credit.  The third option is claiming your tuition and fees as a deduction.  Where a tax deduction reduces only your taxable income, claiming one of the credits reduces your bill by the actual credit amount  Only one of these credits can be claimed for a qualifying student, you cannot claim both in the same year.  However, if you have paid education expenses for two students, these credits can be claimed on a per-student, per-year basis!  As with any accounting, it’s all in the math.  A lot of people will be better off claiming the credits and reducing their bill outright. Whereas making deductions might still land you in the same tax bracket, barely making an impact.  Ultimately, the bottom line will always tell you which is the best way to go.

Here is a guide to which option may be best for you:

Tuition and fees deduction

You are allowed up to a $4,000 deduction and you don’t even have to itemize them.  The deduction is for the taxpayer, not the student.  If there are multiple students in the household, this may not be the most beneficial

American Opportunity Credit

You are allowed up to $2,500 credit per eligible student, therefore, if you have two students in the household you could receive a $5,000 credit off of your final tax bill.  The American Opportunity Credit is only available for the first 4 years of any student pursuing an undergraduate degree and needs to be enrolled at least half-time during one academic period to qualify.  All of your tuition and required enrollment fees are qualified expenses along with any course materials and supplies needed and don’t have to be purchased from the institution in order to qualify.

Lifetime Learning Credit

This allows up to $2,000 credit per return— not student.  So only one Lifetime Learning Credit can be claimed per tax year no matter how many qualifying students.  However, the advantage of this credit is that you can claim it for any post-secondary education and it applies to all courses that help acquire or improve job skills.  It is not necessary to be pursuing a degree or other recognized education credential.  All qualifying expenses include tuition and enrollment fees, and course materials, supplies and equipment purchased from the institution.

No matter what your situation, these are three great tools to use to whittle down tax liability, and for good reason. These days education can be expensive so take advantage of all the help you can get!