Back-to-School Tax Credits


Are you, your spouse, or a dependent heading off to college?

If so, here’s a quick tip from the IRS: there are education tax credits that can save you money at tax time.

American Opportunity Tax Credit

This credit can be up to $2,500 annually for an eligible student. The credit applies for the first four years of higher education. Forty percent of the credit (up to $1,000) is refundable, even if you don’t owe any taxes.

To be eligible for this credit your adjusted gross income must be less than $160,00 (if you are married, filing jointly) or $80,000 for all others.

Lifetime Learning Credit

This tax credit allows you to claim up to $2,000 on your federal tax return (20% of up to $10,000 of tuition and related expenses). There is no limit on the number of years you can claim it for an eligible student. To be eligible for this credit, your adjusted gross income must be less than $128,000 (if you are married, filing jointly) or $64,000 (if you are single).

Details for Both Credits

You can claim only one type of education credit per student each year. If more than one student qualifies for a credit in the same tax  year, you can claim a different credit for each student.

You may include qualified expenses to figure your credit. Qualified expenses include amounts paid for tuition, fees and other related expenses (books, supplies, equipment, etc.).

Eligible schools are those that offer education beyond high school. This includes most colleges and universities, as well as vocational schools and other postsecondary schools.

Claims these credits on IRS Form 8863 Education Credits. Enter the amount of your credit from this form onto Form 1040.

Form 1098-T

In most cases, you should receive IRS Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit.

For additional information about these tax credits, visit the Tax Benefits for Education Information Center on Also, check IRS Publication 970, Tax Benefits for Education.

Caution about Education Credits

Family child care providers should use these tax credits for courses that are not related to family child care or for classes that are taken by other members of your family. If you are taking workshops or classes that are related to your business, it’s better to claim them as a direct business expense on Schedule C, rather than using these tax credits.

For example, if you spend $100 on a child care class and claim it as a business deduction on Schedule C, you would save about $30 on your taxes (assuming you are in the 15% tax bracket + 15% Social Security tax). If you are in the 25% tax bracket, you would save about $40.

However, if you used the Lifetime Learning Credit, your savings would only be $20 ($100 x 20% credit = $20). Note: You can not use the $20 for your Lifetime Learning Credit and claim the other $80 as a business deduction.

This article was taken from the IRS Summertime Tax Tip 2014-23 with some revisions.

Tom Copeland –

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2014 TW smallFor more information about all tax credits, see my annual Family Child Care Tax Workbook and Organizer

Categories: Record Keeping & Taxes, Tax Return

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