Education Tax Credit Vs. Tuition And Fees Deduction

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There are three different tax breaks for higher education costs by the Internal Revenue Service (IRS).

  • The American Opportunity Credit,
  • The lifetime Learning Credit
  • The Tuition And Deduction Fees Deduction

Though, A person is allowed to claim only one tax benefit for education for that particular fiscal year. So everyone manages to calculate which one is going to give you the most money back. As long as, a taxpayer is eligible for this deduction, it can make a huge difference on your tax return.

Both the “Tuition And Fees Deduction” and two types of tax credits in the same tax year. So you may have to prepare your returns in both of the ways to get the most of the advantage out of all. Many of the people cannot claim both of the credits and they claim the Tuition and Fees Deduction as of income and enrollment restrictions.

The Tuition and Fees Deduction Tax Credit backed by an advantage that is is not subject to any exacting rules as it is in the case of Education related tax credits are. The Tuition And Fees Deduction student Tax Credit is not restricted on what year of your course you are in or your dependent attending. It does not depend upon whether you are a part-time or a full time student. Even attending a one class one single class would qualify the taxpayer for this deduction.

  • Federal Tax Savings

Many of the people will get the greater income tax savings, either by the American Opportunity Credit or the Lifetime Learning Credit. The maximum credit of $2500, which requires only $4000 of qualified expenses, is offered by the American Opportunity Credit. For a maximum credit of $2000, the lifetime learning credit offers a credit of 20 percent of up to $10,000 in expenses. There is deduction of $4000 is allowed by the Tuition And Fees Deduction. As you know, it’s a deduction, you have to multiply your deduction by your tax rate to calculate the savings.

For Instance, if a taxpayer falls in the category of 30 percent tax slab, a $3000 deduction will save him $900.  

  • Qualified Expenses

As stated earlier, the qualified expenses for all the three category including Tuition and Fees requires attendance, though, American Opportunity Credit offers you to include the costs of supplies and books, even if you have not purchased it from the school. If you want to qualify for the American Opportunity Credit, you must be in your first four of your post secondary education. If you are done with your degree, you can’t claim the American Opportunity Credit.

  • Other Criteria

The American Opportunity Credit allows only those students for the deductions who do not have any drug convictions on their record. On the Other hand both the, Lifetime Learning Credit or The Tuition And Fees Deduction have any such kind of requirement.

All these three kinds of Tax savings have income limitations. The highest credit limit is in the American Opportunity Credit followed by the Tuition And Fees Deduction. There is lowest income limit offered by the Lifetime Learning Credit. 

  • State  And Federal Taxes

There will be reduced Federal Income taxes as well as the State income taxes. It is because the Tuition and Fees Deduction is adjusted in the Federal adjusted gross income. Many states uses the Federal adjusted Gross income. This will help the reduced tax and gives more benefit on the deduction. On the other hand this is not the case with the other deductions.

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