Education tax credits can help you pay for the costs of higher education. Credits are great because they are dollar for dollar reductions in your taxes due as opposed to deductions which merely reduce your income subject to tax.
The American Opportunity Credit (AOC) tends to be the most desirable credit because it offers the biggest bang for your buck - and it's refundable. But there are also significant limitations on the AOC - that can make the Lifetime Learning Credit (LLC) a more attractive alternative for some students.
The Lifetime Learning Credit offers up to $2,000 for qualified education expenses paid for all eligible students. Yes, there's an "all" in there which means that the LLC is limited by return, not by student. You can claim the $2,500 AOC for each qualifying student on your federal income tax return but you'll have to cap the LLC at $2,000 per return.
The amount of the credit is figured by calculating 20% of the first $10,000 of qualified education expenses - up to that maximum of $2,000 per taxpayer. Unlike the AOC, the LLC is not refundable which means that if your credit exceeds your tax, you won’t receive a refund of the difference.
While that's not as advantageous, this is: unlike the AOC, there is no limit on the number of years the LLC can be claimed for each student. This makes the credit particularly attractive for graduate students or those students taking only a few classes. Even better? With the LLC, the student does not need to be pursuing a degree or other recognized education credential. So those extra biology classes that you're taking? The ones that you signed up for just to see if you want to go to medical school? They would count.
And good news: that felony drug conviction? The one you didn't want to tell your mom about? (Don't worry, Mom, while the medical school thing was real, this is not a confession.) It doesn't count against you for purposes of the LLC. It would, however, stand in the way of your claiming the AOC.
You cannot claim the LLC if someone else claims you as a dependent on his or her tax return. The LLC is subject to income limitations and may be reduced or eliminated depending on your income.
You can use money that you borrow in order to calculate the credit but you cannot claim the credit based on expenses paid with tax-free scholarship, fellowship or grant money, a Coverdell account, tax-free savings bond interest or employer-provided education assistance. Similarly, you can't claim the tuition and fees deduction and education credits for the same tax year. Remember: no double dipping!
For purposes of the LLC, qualified education expenses do not include amounts paid for insurance, medical expenses (including student health fees), transportation, room and board and similar personal, living, or family expenses – even if the payment of these expenses are a condition of enrollment or attendance. Qualified expenses do include tuition and fees required for enrollment. This includes amounts you were required to pay to the institution for course-related books, supplies and equipment. Equipment may include a computer and other technology related accessories if those are needed as a condition of enrollment or attendance at the educational institution.
And that brings us to our next giveaway! One reader will receive a Toshiba Satellite P55t. The world’s first laptop to earn Technicolor Color Certification, Toshiba’s 15.6-inch Satellite P55t is exactly what creative pros and multimedia enthusiasts need for fall. With a native resolution of 3840 x 2160, it has an Intel Core i7 Quad-core processor, 1 TB of hard drive storage and multiple ports, including four USB 3.0 ports, one with USB Sleep & Charge/Music, and HDMI port capable of 4K output, plus it comes with a full version of Adobe Photoshop Lightroom 5.
To enter to win, just answer this question: If you could go back to school to take one (or replace) more course, what would it be? I'll go first: I wish I'd stuck with French a little longer.
Entries must be posted in the comments section for this blog post in the space below by 10:00 p.m. EST on October 1, 2014. It's just that easy. I’ll choose one winner randomly (using a number generator) out of all of the qualifying entries.
Be sure and read the fine print for more rules because, as you know, I’m a lawyer and I like rules:
Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts. If you have difficulty registering, please send an email to blogadmin@forbes.com and copy me (tech@taxgirl.com) so that I can help if I need to/can.
I love my Twitter followers and my Facebook fans but for this particular giveaway, tweets and Facebook comments will not be counted. Ditto for emails. You must leave your comment on the blog at this post.
You can enter as many times as you like but you must leave a different answer each time you comment.
Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest. Similarly, pingbacks and other links will be disregarded for purposes of the contest.
I will need your full name and your email address: be sure to use your real information when you register to leave a comment. I won’t publish your email address but I do need contact information for the winning entry. If you win and I can't reach you, it's a forfeit.
Due to shipping considerations, you must have a valid United States address. Sorry, Canada, eh?
I respect your privacy and I will not send you anything unrelated to your entry in this contest. By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
Like Judge Judy, my determination is final.
Prizes are provided directly by our sponsors and are not exchangeable or redeemable for other prizes. Sponsors do not pay for placement and do not receive any compensation for contributions – neither do I! I have no affiliation, paid or otherwise, with any of our sponsors.
If you aren't allowed to participate in giveaways because of the laws in your state or your age or an agreement you've made with your mother, consider this giveaway not applicable to you. In other words: void where prohibited or restricted.
Finally, the giveaway is about me, me, me. It’s not affiliated with or endorsed by Forbes. So leave them out of it, okay?
Comment away! And thanks for participating in Back To School 2014!
