The tax credit reduces the amount of income tax you owe on your taxes, while a tax deduction lowers the amount of income you have to pay taxes on in the first place.
Both are valuable benefits that can help save you money on your taxes, but not all tax credits and deductions are created equal. While some are straightforward and easy to claim, others get overlooked—but shouldn’t be!
Here are 4 college-related tax credits worth claiming as you file your taxes this year.
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The Lifetime Learning Credit
The American Opportunity Tax Credit (eight sentences): The American Opportunity Tax Credit is a tax credit that helps with the costs of post-secondary education and other educational expenses. Up to $2,500 per tax return, the American Opportunity Tax Credit can be used for up to four years of undergraduate study.
The credit is available for both undergraduate and graduate students. However, unlike the Lifetime Learning Credit, this credit does not cover non-degree courses such as high school equivalency or professional certification programs.
Furthermore, it cannot be used by taxpayers who have no qualifying income from which to claim a deduction or by those who have qualified for another education tax benefit.
The Tuition and Fees Deduction
This deduction can be taken for qualified education expenses paid for an eligible student. The maximum deduction is $4,000 and is available to taxpayers with modified adjusted gross incomes (MAGI) of less than $80,000 ($160,000 for joint filers).
Additionally, the Tuition and Fees Deduction will no longer be available starting in 2018 if you are claiming the American Opportunity Credit or Lifetime Learning Credit. Keep this limitation in mind when deciding which credit to claim on your tax return next year.
The Student Loan Interest Deduction
For starters, the Student Loan Interest Deduction can save you up to $625 on your taxes. That’s a pretty significant amount, especially if you’re just starting out in your career.
But it gets even better: the deduction is available for both federal and private loans, so you can really maximize your savings. And there’s no need to itemize deductions in order to claim it – it’s available whether you itemize or not. So if you’re paying off student loans, be sure to take advantage of this deduction!
Education Credits for Military Families
The federal government offers a few different education tax credits for military families. The Lifetime Learning Credit and the American Opportunity Tax Credit both offer up to $2,500 per year for eligible expenses.
The tuition and fees deduction allows you to deduct up to $4,000 from your taxes if you’re paying for college yourself. And if your employer offers educational assistance, you may be able to exclude up to $5,250 of that money from your taxes. Finally, if you’re a student loan borrower, you can deduct up to $2,500 of the interest you paid on your loans last year.