With the rising cost of higher education, many taxpayers wonder how they can offset some of their school expenses. One option is to claim the Lifetime Learning credit on your federal income tax return. This credit reduces your tax bill on a dollar-for-dollar basis for a portion of the tuition and fees you pay for yourself, a spouse or a dependent to enroll in school.
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Qualifying for the credit
In order to qualify for the Lifetime Learning credit, you must have made tuition and fee payments to a post-secondary school (after high school) during the year. You can claim the credit for any post-secondary classes you take; you don't have to be working towards a degree. Some limitations do exist though. If you earn too much income during the year, you may not be eligible to claim the credit. However, this also depends on your filing status.
Calculating your credit
You can include the cost of tuition, fees and any books or supplies you are required to purchase directly from the school if it's a condition of enrollment. Therefore, if your professor recommends that you purchase a textbook even though you can still enroll in the class without one, then you cannot include the cost of the textbook in the credit. As of 2010, the maximum credit you can claim is 20 percent of up to $10,000 in eligible costs or $2,000.
Filling out Form 8863
At the end of the year, your educational institution should send you a Form 1098-T that reports your eligible costs. To claim the credit, enter those figures on Form 8863. When you prepare the form, you only need to complete parts 3 and 6 to calculate the credit amount you are eligible for. Transfer the credit amount to your income tax return and be sure to attach the 8863 to it before sending to the IRS.
Keep in mind, when you use TurboTax to prepare your taxes, we will ask you simple questions about your education expenses and fill in all the right forms for you.
No double benefits allowed
You cannot claim the American Opportunity credit or a tuition deduction in the same year you claim the Lifetime Learning credit. The IRS only allows one tax reduction per student, per year. However, before claiming the Lifetime Learning credit, you should determine whether you qualify to take the American Opportunity credit. For most students who are in one of their first four years of post-secondary education, the American Opportunity credit can provide greater tax savings since the maximum credit is $2,500.
Again, when you use TurboTax, we’ll determine which credit gives you the biggest benefit and recommend the best choice for your tax situation.