This tax credit is perfect for those who have incurred certain educational expenses like tuition. It gives taxpayers a chance to save some money on the taxes they may owe the IRS come tax season.
The Lifetime Learning Tax Credit (LLC) is a great credit to take if you do not qualify for the American Opportunity tax credit (AOTC). If you are eligible for it, the AOTC is the better option; it gives you more bang for your buck. The AOTC provides a greater amount of tax savings per dollar of educational expenses.
The LLC gives eligible taxpayers the opportunity to claim an annual tax credit up to $2,000 to aid in education costs relating to college and continuing education costs. This credit may only be claimed once per year per taxpayer, but it can be claimed for an unlimited number of years provided the taxpayer incurs eligible expenses.
In this article, we will take a closer look at this tax credit and the details you need to know before taking this tax benefit. It’s important that you understand how to take this education credit so that your taxes are completed accurately.
Of course, if you need assistance, it’s best to meet with a qualified tax accountant to make sure your taxes are done properly.
What is the Lifetime Learning Tax Credit (LLC)?
This tax credit is for qualified education expenses, like tuition and related fees. The expenses must be paid for eligible students who are enrolled in eligible educational institutions. The Lifetime Learning Tax Credit helps taxpayers pay for undergraduate, graduate, and professional degree courses. This includes courses taken to acquire or improve job skills.
This tax credit is available annually and can be claimed on your tax return only once per taxpayer per year. However, you can take this credit for an unlimited number of years.
Who can claim the LLC?
This credit is available for taxpayers, spouses, and dependents. If you meet these criteria, you are eligible to claim this tax credit on your annual tax return.
The Internal Revenue Service (IRS) explains that you can claim the LLC if you meet all three of these criteria:
- You, your dependent, or third party paid qualified education expenses for higher education.
- You, your dependent, or third party paid the education expenses for an eligible student enrolled at an eligible institution.
- You, your spouse, or your dependent was an eligible student listed on your tax return.
The IRS has an interactive application where you can find out if you are eligible to claim this education credit.
What are qualified expenses?
The Lifetime Learning Tax Credit may be used for certain education expenses like tuition, fees, and other related expenses that are required for an eligible degree program at an educational institution.
Who is an eligible student for LLC?
According to the Internal Revenue Service, to be considered an eligible student for the LLC, the student must be enrolled or taking courses at an eligible education institution, be taking higher education courses in an effort to get a degree or credential to get or improve the student’s job-related skills, and be enrolled for a minimum of one academic period.
The academic period may be semesters, trimesters, quarters, or any other period of study. For example, a summer school session would qualify. For schools that don’t use academic periods, the payment period can be used to count as an academic period.
What is an eligible educational institution?
All accredited schools, like colleges and universities, qualify as eligible educational institutions. This includes vocational schools and post-secondary institutions.
Even tuition paid to educational institutions to further your career, such as classes to acquire or improve upon job-related skills is eligible according to the Internal Revenue Service.
Provided the school can participate in federal student aid programs through the United States Department of Education, the classes should be eligible for this tax credit.
What is the difference between the LLC and the AOTC?
Since you can only claim one tax credit, it’s a good idea to see which of these two is more beneficial and which you qualify for. The IRS has a great page that compares these two tax credits. Check it out to see the notable differences between the Lifetime Learning Tax Credit and the American Opportunity Tax Credit.
What are the income limits for the LLC?
For the tax year 2019, the amount of your LLC is reduced if your modified adjusted gross income is between $58,000 and $68,000 ($116,000 and $136,000 if you file a joint tax return). You won’t be able to claim this tax credit if your MAGI is $68,000 or more ($136,000 if filing jointly).
The limits change to $59,000 (single) and $118,000 (married filing a joint tax return) for the tax year 2020.
How can I claim the LLC?
The Lifetime Learning Tax Credit is an annual credit that may be claimed for postsecondary education expenses such as fees and tuition as required for a degree program or for courses aimed to acquire or improve job skills.
To be eligible for the LLC, the taxpayer (or dependent) must have received Form 1098-T: Tuition Statement from an eligible school or institution. Generally, students receive this form by January 31 of the tax year.
Use this form to figure out the amount of your tax credit, but make sure the school reported the right amount on the form to avoid any tax problems. If you do not receive this form by January 31, contact your school.
To claim the LLC, complete IRS Form 8863. Then, attach that form to IRS Form 1040. If you need additional assistance with this, make sure you visit with a qualified tax accountant.
What is the LLC worth?
One nice thing about the Lifetime Learning Credit is that there is no limit on the number of years you can claim the credit. The LLC is worth up to $2,000 per tax return.
The amount of the tax credit is 20% of the first $10,000 of qualified education expenses or the maximum of $2,000 per tax return. This is not a refundable tax credit, so you can use the tax credit to pay taxes you owe, but you will not receive any of the tax credit back as a tax refund.
Being bogged down with student loans and education expenses is unfortunate. Luckily, the government lends a helping hand when it comes to your taxes. They offer many tax breaks for those who have incurred education expenses, such as the tuition and fees deduction and the American opportunity tax credit.
If you are unable to take the AOTC, which is a much more beneficial tax credit, see if you can claim the lifetime learning tax credit. If you need help in determining which education tax credit or deduction to take, talk to a qualified tax professional who can help you get the most out of your tax return.
At Borshoff Consulting, we are here to help in making decisions such as these, but did you know that we can also help you with audits and business consulting?
Please contact us today to find out more about how we can best help you get the most out of your tax return or pending tax audit. We are more than happy to assist with income tax returns, as well. You can trust Indiana’s tax expert to steer you in the right direction!