Comparing Education Tax Benefits

If you’re one of the many thousands of individuals who joined the ranks of the unemployed over the past year or so, who are considering a new career path or who are looking for additional funds to offset the cost of a dependent’s schooling, you’ll be happy to know that Uncle Sam is offering several tax and education credits that can help you fulfill your goals.

There are several methods of obtaining funds for higher education but if you’re looking for education and tax credits, you’ll want to consider the following three education tax benefits:

The Lifetime Learning Tax Credit is a tax and education credit for any individual who takes college classes regardless of whether or not they are pursuing a degree. This credit is ideal for people who want to take courses to enhance their job skills or pursue different career options because you can still qualify for the credit even if you only take one course.  This tax and education credit provides up to $2,000 on the first $10,000 of college tuition and fees. You can claim the Lifetime Learning Credit on your tax return if you, your spouse, or anyone you can claim as a dependent on your tax return is enrolled at an eligible educational institution and you paid for the college expenses.

Introduced for tax years 2009 and 2010 only, (unless Congress elects to extend it for 2011) as a measure to provide some relief from the poor economic climate, the American Opportunity Tax Credit (AOC) provides up to $2,500 in tax credits on the first $4,000 of qualifying undergraduate college expenses.  Forty percent of the tax credit (up to a $1,000 maximum) is refundable.

The AOC was formerly known as the Hope Scholarship Tax Credit which offers a tax and education credit of up to $1,800 on the first $2,400 of college tuition and fees for the first two years of college expenses. The American Opportunity Tax Credit is available to students enrolled at least half-time at an eligible educational institution.

For the purpose of determining tax and education credits, eligible educational institutions are accredited colleges and universities, vocational schools and other postsecondary institutions.  A good rule of thumb is that if the institution is eligible to participate in federal student aid programs, then tuition and fees paid to the school may be applied towards the American Opportunity, Hope Scholarship, or Lifetime Learning tax and education credits.  You can apply for these education tax credits if you, your spouse, or any of your dependents attended college and you paid for the college expenses.

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