Looking to further your education or job skills but the costs are weighing you down? Don’t feel like you are by yourself. The costs to get any education have escalated significantly over the last few years. You are not the only one scrambling to finding ways to offset the costs of education. The Lifetime Learning Tax Credit may be the answer you’ve been looking for. The credit is an opportunity to offset the costs of your education by lowering your income tax bill by up to $2000 per tax year.
In order to qualify for the credit and to maximize your benefits, here are a few strategies to ensure your success.
The costs to attend school, such as tuition and registration fees, are eligible for the Lifetime Learning Credit. Other eligible costs include books, supplies and equipment, the cost of buying a computer for school, student activity fees and athletic fees. However, the costs of room and board are not deductible costs for the Lifetime Learning Credit.
This is essential to know how much credit will help defray the costs of your education. The credit is 20 percent of the total educational costs incurred in the calendar year. The total costs cannot exceed $10,000. The maximum credit is 20 percent of $10,000 or it is $2,000. Education is priceless, but the fees to attend school are pricey. Know how to balance the school budget.
The credit is based on the taxpayer and is not a per-student credit. If you are a parent and file your tax return every year, then you are the taxpayer. The family files as a family unit. When dealing with multiple children on the return, remember the lifetime learning credit is not a per-person credit. The family maximum is $2,000. The number of students are not taken into consideration.
A tax credit is better than a tax deduction. A tax credit is like having an extra bucket of cash available in case you need to use it. Think of it like going to the store and you are short a few pennies. Sometimes the store clerk or the person in line behind you may extend that little extra change to complete your order. A tax credit works in the same manner. The federal government is allowing you up to $2,000 in tax credits to help complete the payment of your tax bill. You can only use what is needed to bring your tax bill to zero. If you need all of it, then you may use all of it. If you only need $1,000 of the tax credit, then you can only use a $1,000. The remainder of the credit is not available.
The lifetime learning credit is available every tax year. You can use it this year and the next school year. The credit is available as long as the tax laws do not change. The credit can help you from the beginning of your post high school education all the way through graduate school. Polishing up job skills and getting new jobs skills qualify as well.
The credit has some income limitations. The limitations are based on your tax filing status. If you are married and filing a joint return with your spouse, you can only make up to $106,999 to take the full credit of $2,000. If you are filing as a single person and are not married, you are able to take the full credit if you make $79,999 or less. If you are the parent and your income limit is too high to take the credit, you may choose not to carry your student that year as a dependent. Instead, the student may be eligible to file their own tax return and use the credit for themselves as a single taxpayer.
The qualified education expenses have to be reduced by any tax-free educational assistance. If you receive a scholarship to pay for a portion of your school costs, you cannot include that portion of the costs. This means you have to know if part of your education is being paid for by other means. Grants, employer-provided reimbursement plans, or veterans educational assistance have to be reviewed to see how much of this assistance helped to reduce your educational costs.
Any hobbies or sports that are not directly related to your education or improve work skills, and you do not receive educational credit for the hobby or sport participation, then these costs are not eligible for the Lifetime Learning Credit. Understanding what classes to take will help you get the maximum out of the educational credit.
The Lifetime Learning Credit is an opportunity for you to defray your educational costs for life as long as the tax laws do not change. Having a tax credit on your tax return up to $2,000 per year will offset your educational costs and any taxes you might owe. Knowing what is considered educational costs and having an idea of the credit up front, allows you better educational planning. Make sure you get the most out of the credit by keeping an eye on the income limitations as well as costs that are not eligible for the credit. Educational costs can be met with scholarships, grants and tax credits. Good knowledge on how best to use all the tools available to help you pay for your education, will keep your costs under control.
More expert advice about Financing Education
Photo Credits: Phase4Photography/BigStockPhoto.com; Check Man, Cross Man and Jump Man © ioannis kounadeas - Fotolia.com