Work the Tax Code to Improve Educational Funding—Part II

Last week we opened our two-part series on funding for secondary education and the tax credits available to you. If you missed it, click here. This week, we’ll address some additional options available to you:

Lifetime Learning Credit

The Lifetime Learning Credit helps parents and students pay for post-secondary education.

For the tax year, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. Although no limit exists on the number of years the Lifetime Learning Credit can be claimed for each student, a taxpayer cannot claim both the American Opportunity Credit and Lifetime Learning Credits for the same student in one year. Thus, the Lifetime Learning Credit may be particularly helpful to graduate students, students who are only taking one course and those who aren’t pursuing a degree.

Generally, you can claim the Lifetime Learning Credit if all three of the following requirements are met:

  • You pay qualified education expenses of higher education
  • You pay the education expenses for an eligible student
  • The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. Meaning, for example, you can claim the Hope or American Opportunity Credit for one student and the Lifetime Learning Credit for another student in the same year.

Tuition and Fees Deduction

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent. You can’t claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. Additionally, the qualified expenses must be for higher education.

The tuition and fees deduction can reduce the amount of your taxable income by up to $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income; meaning you can claim it even if you don’t itemize deductions on Schedule A (Form 1040). This deduction may be especially beneficial to those who can’t take the Lifetime Learning Credit because their incomes are too high.

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met:

  • You pay qualified education expenses of higher education
  • You pay the education expenses for an eligible student
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return

You cannot claim the tuition and fees deduction if any of the following apply:

  • Your filing status is married filing separately
  • Another person can claim an exemption for you as a dependent on his or her tax return. You can’t take the deduction even if the other person doesn’t actually claim that exemption
  • Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return)

Qualified Education Expenses

Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance.

However, expenses for books, supplies and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution.

Education Expenses That Don’t Qualify

  • Insurance
  • Medical expenses (including student health fees)
  • Room and board
  • Transportation
  • Similar personal, living or family expenses

Confused about the information contained in these last two blogs? Or do you just need some guidance from a trusted CPA? We can help you decide which route fits best for your needs. For personalized service, contact us today at Office@CPAsite.com or (904) 396-5400.

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