The tax code offers several tax breaks that can cut tax bills for parents and students. They include the American Opportunity Tax Credit, the Lifetime Learning Credit, and the tuition and fees deduction. All these perks have income cut-offs, and you can’t claim more than one tax break per student per year.
So keep in mind that a credit, which reduces your tax bill dollar for dollar, is more valuable than a deduction, which simply cuts how much of your income that’s taxed. The American Opportunity Credit, which can be worth as much as $2,500, is the most lucrative education tax break. It should be your first choice
But if the student qualifies for need-based financial aid, give the tuition deduction a second look. Because it lowers your adjusted gross income, it might help you score more aid next fall.
Even adults who have long since left college can save. If you took a class that gave you new job skills in 2015, you may qualify for the lifetime learning credit, which is worth up to $2,000.
And if you’re paying off student loans already, there’s one more tax break to grab: the student loan interest deduction. Depending on your income, you may be able to write off as much as $2,500 in interest this year, even if you take the standard deduction.