Adult Full-Time Student Tax Deductions

There’s no mistaking: the cost of higher education is steadily on the rise. According to one 2021 report, the average college student will spend ​$35,720​ per year. It is also worth noting that students at in-state public schools will have an easier time of it. Those who choose private universities should be prepared to spend ​$53,949​ per year of study.

By the end of four years, college students would have spent at least ​$140,000​ for a degree. That is a pretty significant sum. As the cost of education has become too much for many, adult part-time and full-time students need all the help they can get.

The good news is that the IRS does help students get relief from some of these costs in the form of education tax credits and deductions. Full-time student tax credits reduce the amount of income tax you owe, while a deduction reduces the amount of taxable income you have. Both the American Opportunity Tax Credit and the Lifetime Learning Credit provide part- and full-time students with powerful cost savings as part of their year-end tax return.

​Read More:​ Work-Related Education Expenses: Deductions, Rules & More

There are currently two education tax credits offered by the IRS: the American Opportunity Tax Credit and the Lifetime Learning Credit. Both reduce the amount of taxes you owe when you file your taxes. If your tax obligation is reduced to less than zero, you may receive a refund.

Although other rules are in place for determining eligibility such as income thresholds, in order to qualify for either credit, you must first meet three criteria. The first criterion is that you, a third party or a dependent is paying for qualifying expenses related to education.

The next requirement is that you must be an eligible student enrolled in an eligible institution of higher learning. And lastly, the eligible student must be you, your spouse or a dependent listed on your tax return.

As part of the eligibility, you typically must fit the IRS part- or full-time student definition so that you qualify as a student for tax purposes. If you find yourself eligible for both tax credits in the same tax year, you must choose which credit you wish to claim as the IRS does not allow for claiming both.

The American Opportunity Tax Credit, which modifies the Hope Act, was slated to end in 2012. However, it is still available for students even now.

This tax credit is a maximum of ​$2,500​ for those who match IRS part- or full-time student eligibility guidelines and gives assistance with necessities like school supplies, books or any equipment needed in the course of your studies, but cannot be used for tuition.

Check the IRS website to see all eligibility requirements and income thresholds for this credit.

There is also the Lifetime Learning Credit. The LLC helps offset qualified tuition and expenses related to pursuing higher education from your part- or full-time student taxes. Unlike the American Opportunity Tax Credit, there are no limit restrictions to the number of years you're allowed to claim this credit, and you may be eligible for up to ​$2,000​ in credit per tax return.

It also can be used for courses related to obtaining or improving job skills as well as for undergraduate, graduate and postgraduate courses. The IRS website has FAQs, tax credit comparison charts and other helpful information that can help you decide which tax break for college students is best for you.

If you are self-employed, you also might be eligible to deduct qualifying educational expenses directly from self-employment income. This will not only reduce the amount of income you'll be taxed on, it will also reduce your self-employment tax, as well. If you're unsure of whether you're eligible for these deductions or credits, visit a qualified tax professional and familiarize yourself with the IRS website.

The IRS also allows for some deductions you can use to reduce the amount of income on which you pay tax. If your modified adjusted income is less than ​$85,000​ when filing singly or ​$170,000​ if filing jointly, you might be able claim a student tax exemption deduction for paying interest on your student loan. If you qualify, you can reduce up to ​$2,500​ of your income that is subject to tax.

​Read More​: An Overview of Itemized Deductions: Definition, How to Claim & Limitations

Do college students have to file taxes? Well, if you want to enjoy tax credits and claim deductions, you do.

You can use IRS Form 1040 in order to claim the majority of the deductions and credits available to you as a student. If you have any questions about how to properly file this form, it is strongly recommended that you consult with a CPA who can help ensure that you make the most appropriate decisions for your financial status.

​Read More​: Form 1040: What You Need to Know