Extra help is here for students navigating tax time.
By Chris Kyle
The IRS estimates that people will spend 21.4 hours filling out their 1040 at tax time. That's a daunting amount of effort for students who are juggling many different responsibilities.
Want to save some time - and money - this year? Check out our Q&A on the two most common tax credits available to students pursuing college, graduate school, or vocational training.
The American Opportunity Credit
Potential Benefit: $2,500
What is the American Opportunity Credit?
The American Opportunity Credit, a product of the 2009 stimulus package, is an expanded and renamed version of the already-existing Hope Credit for 2009 and 2010.
Where the Hope Credit applies to the first two years of undergraduate college, the American Opportunity Credit allows undergraduate students to claim expenses for the first four years of college.
It offers a credit of up to $2,500 per student who is enrolled in a qualifying college, online school, or trade school.
And remember, that $2,500 is a tax credit and not a deduction.
"It comes directly off of your tax liability and is a dollar for dollar reduction in the actual taxes that you pay," John W. Roth, a senior tax analyst, told Forbes magazine.
What's covered?
For each eligible student, the maximum credit of $2,500 includes:
* 100% of the first $2,000 of qualifying expenses
* 25% of the next $2,000 of qualifying expenses
Qualifying expenses include tuition, fees, books, supplies, and equipment. This includes a computer, if one is required as a condition of enrollment, which is the case for many campus-based and online schools.
Another change: even those who owe no federal tax can now qualify for up to $1,000.
Who qualifies?
The credit covers four years of tuition and related school expenses for taxpayers who earned $80,000 or less ($160,000 if filing jointly).
A reduced credit is available if you made between $80,000 and $90,000. Earn more than that and you're out luck. Students in their fifth year of post-secondary education also do not qualify.
For more information, check with the IRS or contact a tax professional.
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The Lifetime Learning Credit
Potential Benefit: $2,000
What is the Lifetime Learning Credit?
The Lifetime Learning Credit credits taxpayers with up to $2,000 for college, graduate school, and individual course expenses such as continuing education.
Unlike the American Opportunity Credit, you are eligible any number of years. However, you cannot claim the Lifetime Learning Credit in the same year as the American Opportunity Credit.
Typically, the Lifetime Learning Credit is used by those who have exhausted their American Opportunity and Hope eligibility.
What's covered?
The Lifetime Learning Credit covers 20% of the first $10,000 in eligible education expenses. The maximum amount of credit is $2,000 per household.
The credit can be claimed by the taxpayer, the taxpayer's spouse, or a dependent. But unlike the American Opportunity Credit, the Lifetime Learning Credit can only be claimed once per tax return, regardless of how many students in the family may qualify.
Who qualifies?
Just about anyone with education expenses who earns $80,000 or less ($160,000 or less for joint filers) is eligible.
And unlike the American Opportunity Credit, a student enrolled in just one adult continuing education class would qualify, as do students in a full degree program. This also covers students enrolled in online courses and certificate programs.
As always, check with the IRS or consult a tax professional for more information.
And don't forget to file by April 15!
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Chris Kyle is a contributor to EducationStart.org, a one-stop resource for information about colleges and higher education.
