Tuition and Taxes

In order to help students and taxpayers who are supporting students there are 3 ways the federal government helps out at tax time: the American Opportunity Tax Credit, the Lifetime Learning Tax Credit, and the tuition and fee deduction.
The American Opportunity Tax Credit is for the first years of secondary education be it at a college, university or trade school until a degree or certification is awarded. The maximum credit against your taxes is $2500. If it brings your tax liability to zero, you can get up to $1,000 refunded. This is a really big help to students but it is limited to only four years for each student–but they do not need to be consecutive.
Let’s face it, these days it is pretty difficult for a student to get their undergraduate degree in four years. Most students end up going part-time at some point in their college career or end up spending a year or three at a lower-priced institution to get their pre-reqs out of the way. It is not always in the taxpayer’s best interest to take the AOTC when in their first years at a Junior College when planning on moving to a more expensive university to finish up. So, use this credit wisely.
The Life Learning Credit is for anyone who is engaged in secondary or post secondary education not necessarily in pursuit of a degree or certification. If you take some computer classes to help you with your occupation, you are eligible for the credit. At a maximum of $2,000, it is a non-refundable credit and it is harder to qualify for than the American Opportunity Credit due to income restrictions. On the plus side, there is no limit on how often this credit can be claimed.
The tuition and fee deduction is on the front page of the form 1040. You can reduce your taxable income up to $4000 by using this deductions. This is great for taxpayer’s whose income is too high to qualify for the Lifetime Learning Credit.