In a world where rapid advances and innovations in technology are constantly forcing us to learn how to do new things, or how to do things in new ways, in order to keep our jobs, to gain access to new job markets, to take advantage of new opportunities, or just to keep up with the pace of daily life, the idea of education as a life-long process takes on new meaning and importance. Fortunately, U.S. federal income tax provisions include some relief to help us with the cost of continuing education to keep up with the pace.
Lifetime Learning Credit
As its name suggests, the Lifetime Learning Credit is intended to provide tax relief for educational expenses over the long run. A tax credit is a direct reduction of your income tax, so it reduces your taxes dollar-for-dollar for the amount you spend on qualified education expenses, up to the maximum amount allowed. While there are certain requirements and limitations, the Lifetime Learning Credit is flexible in the sense that you do not have to be studying for a degree. The education expenses can be for acquiring or improving job skills, or learning a new trade or profession. And there is no limit in terms of the number of years you can take the credit. In this sense, it is intended to help you continue to learn throughout your lifetime.
There are actually two tax credits available to help you offset the costs of higher education. They are the Hope credit and the Lifetime Learning Credit, also referred to as the education credits. There is also a deduction for tuition and fees, which is an adjustment to income in determining your adjusted gross income on Form 1040. You may want to calculate the net tax effect of both credits and the deduction, and choose the method that gives you the lower overall tax.
What is the tax benefit of the Lifetime Learning Credit?
The amount of the Lifetime Learning Credit is 10% of up to $20,000 of qualified educational expenses per year, so you may be able to reduce your income taxes by up to $2,000 in any year.
Who can claim the credit?
There are three requirements you must meet in order to claim the Lifetime Learning Credit.
The expenses you paid must be considered qualified higher education expenses.
The person for whom the expenses were paid must be considered an eligible student.
The eligible student must be either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.