By Helen Simon
If you’re one of the many taxpayers who are pursuing a college degree or other post secondary degree, or if you have a child or spouse doing so, there are two credits that could save you a bundle: the American Opportunity Tax Credit and the Lifetime Learning Credit.
Tax deductions versus tax credits
Tax deductions and tax credits both allow us to save money on our income taxes, but tax credits, such as the two above, are the better of the two: While a tax deduction reduces the amount of income you pay taxes on, a tax credit is a dollar-for-dollar deduction from the amount of taxes you owe. The really good news is that if tax credits reduce your tax owed to less than zero, and you are claiming the American Opportunity Tax credit, you may even get a tax refund; this does not apply to the Lifetime Learning Credit.
You may qualify for one or both of these credits if you paid qualified education expenses for yourself, your spouse, or your dependent. However, you can’t claim both credits for the same student in the same year. However, you could possibly claim the American Opportunity Tax Credit for one or more students in your family and then claim the Lifetime Learning Credit for up to $10,000 of qualified expenses for other students in your family. It is worthwhile to compare the two to see which works best in each scenario.
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