You've worked hard for most of your adult life to get your kids to and through college. Now that they've applied to graduate school, you find that you're not done. Graduate school means more money, but it also means a greater return because your children will have a higher earning opportunity. The Internal Revenue Service (IRS) offers a little financial help in the form of education expense credits. This guide explains what you need to know about the lifetime learning credit that you may be able to claim when you file your income taxes.
What is the Lifetime Learning Credit?
The lifetime learning credit is a $2,000 credit that you can choose to offset the tax you've paid to the IRS throughout the year. It is not a deduction that comes off your taxable income, so it helps you in a bigger way.
When your account completes your taxes, they'll take any tax credits you're eligible for off the amount of taxes that you owe. Essentially, opting for the lifetime learning credit could mean $2,000 in your pocket or reduced tax liability.
Who Is Eligible for the Lifetime Learning Credit?
Taxpayers who file married or single and have children in graduate school, who they claim as dependents, can take the lifetime learning credit.
If students claim themselves as a dependent, they can take the credit.
If you're married and you file "married filing separately" you cannot take the credit. You must file married, head-of-household or single in order to make the claim.
Earnings Restrictions: Eligibility is limited to certain income levels. Because the level changes each year, check with your tax preparer to learn what those levels are.
How Often Can You Claim the Lifetime Learning Credit?
Claim the lifetime learning credit each year your child is in graduate school. There is no limit to the amount of years this limit can be claimed and there is no limit to the amount of students you can claim the credit for, as long as they are your dependents on your tax return.
A caveat is that you must choose whether you'll claim the lifetime learning credit or the American opportunity credit for each year you or your dependent is in school. You cannot claim both.
Review all your tax credit options if you or your child enters grad school so you don't miss out on any tax credits that you're entitled to. Give your accountant a list of all your college expenses so they can help determine which credit is best for you. (For more information, contact Alexander & Associates CPA)