Tax Exemptions for Continuing Education
The Internal Revenue Service allows you to deduct a portion of qualifying continuing education expenses on your federal tax return. If you pay the expense on behalf of a spouse or a dependent child, you can also claim the deduction. Work-related continuing education is tax-deductible as long as your employer does not reimburse you for the expense.
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Lifetime Learning Credit
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The Lifetime Learning Credit is a nonrefundable tax exemption. That means if your total tax due for the year is less than your Lifetime Learning Credit, you do not receive a tax refund for the difference. The Lifetime Learning Credit is available every year on each qualifying taxpayer's federal tax return. According to IRS rules, you may receive a maximum tax credit of $2,000 on your federal tax return which reduces your total taxable income for the year. The Lifetime Learning Credit is calculated by taking 20 percent of the first $10,000 of qualified education expenses you pay for all eligible students in your household. There is no age limit or maximum number of eligible students as long as the educational expenses are paid for a spouse or qualifying dependents. In 2011, if your adjusted gross income exceeds $120,000 filing jointly with a spouse or your income exceeds $60,000 filing as a single, head of household or qualifying widow(er), you do not qualify for the tax credit.
American Opportunity Credit
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The American Opportunity Credit offers a tax advantage for college expenses incurred during a student's first four years of postsecondary education. The maximum credit amount is $2,500 of the cost of qualified tuition and related expenses paid during the year. The IRS allows you to treat 40 percent of the credit as refundable up to $1,000. The credit is calculated on 100 percent of the first $2,000 of tuition, fees and course materials plus 25 percent of the next $2,000. To qualify for the American Opportunity Credit, in 2011, your modified adjusted gross income must be $80,000 or less if you file a single return or $160,000 or less if you file jointly with a spouse, and the credit is reduced ratably if your modified adjusted gross income exceeds those limits. If your modified gross income exceeds $90,000 as a single taxpayer or $180,000 as joint tax filers, you cannot claim this credit. You also cannot claim both the Lifetime Learning Credit and the American Opportunity Credit unless you have a spouse and one dependent or two dependents in college at the same time and claim one credit for each student.
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Qualifying Expenses
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Eligible tax-exempt educational expenses for the Lifetime Learning Credit and the American Opportunity Credit include tuition costs, enrollment fees, course-related books, necessary supplies and course-related equipment. Travel expenses, food, clothing and lodging do not qualify as tax-deductible educational expenses. If you receive reimbursements, scholarships or grants that cover all of these expenses, you do not qualify for the tax credit.
Job-Related Education
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If you are continuing your education because it is job-related, many of your educational expenses are tax-exempt as long as your employer does not reimburse you for them. According to the IRS, educational expenses must be for education that maintains or improves your job skills or is required by your employer or by law to keep your salary, status or job. Qualifying expenses include tuition and lab fees, books and supplies, and transportation from your place of employment to your educational institution. These expenses are deducted as miscellaneous itemized deductions on Schedule A of tax Form 1040.
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References
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