American Opportunity Credit

• Taxpayers who claim the American Opportunity Credit for educational expenses paid can receive a tax credit of up to $2,500 as of publication. The credit is available only for the first four years of post-secondary education. That means that if a student enrolls in a five-year joint-degree program, taxpayers who pay his tuition and school fees cannot claim the deduction during the fifth year. Married couples who file jointly can earn no more than $180,000 to claim the American Opportunity Credit.
  
  

Lifetime Learning Credit

• The Lifetime Learning Credit allows taxpayers to claim up to $2,000 in educational expenses per tax return. The credit is available for all years of post-secondary education, and for training and courses an individual takes to improve job skills and opportunities. Married couples who file jointly must earn less than $120,000 to claim the credit.
  
  

Tuition and Fees Tax Deduction

• Married taxpayers who do not qualify for educational tax credits can use an alternate method to shave money off their tax liability according to their tax bracket. The tuition and fees tax deduction allows taxpayers who paid education expenses to deduct $4,000 of the expenses paid from their adjusted gross income. Unlike a tax credit, the tuition and fees deduction allows claimants to reduce their taxable income, according to the March 2007 "Kiplinger" article titled “Tax Credit v. Deduction.” For example, a taxpayer in the 30-percent tax bracket can lower his tax bill by $1,200 ($4,000 x 0.30 = $1,200). As of publication, married couples who file jointly can earn no more than $160,000 annually to claim the tuition and fees tax deduction.
  
  

Eligible Expenses

• Educational expenses must be mandatory to matriculate in an institution of higher learning to qualify for all educational tax credits and deductions. For example, expenses such as tuition, lab fees, books and course supplies are considered eligible expenses. Personal expenses, such as medical insurance or room and board, are not eligible for educational credits or deductions, even if they are paid to the institution of higher learning.
  
  

Considerations

• Taxpayers cannot claim a double benefit for educational expenses they paid, meaning selecting one educational credit or deduction automatically disqualifies a taxpayer from claiming another. Parents who are unable to claim tax credits or deductions for tuition paid can treat the payment as a gift and allow the dependent student to claim the credit or deduction, according to the IRS. However, taxpayers cannot list the dependent student in the exemptions section of their tax return for other exemptions to allow the student to claim the deduction.