Graduate school tuition can be a deductible education expense under the tuition and fees deduction if you meet the criteria. To qualify, you must pay the tuition for yourself, your spouse or your dependent. Your income cannot exceed the annual limits. Payments must be for tuition and fees, not for other expenses like room, board, travel or personal expenses. Regardless of how much your tuition costs, your deduction is limited to $4,000 per year.
Lifetime Learning Credit
Instead of deducting your graduate school tuition, you may save more on your income taxes if you claim the lifetime learning credit instead. The lifetime learning credit has the same requirements, but the income cutoff for those eligible to take it is lower. It gives you a tax credit equal to 20 percent of your first $10,000 of expenses, for a maximum tax credit of $2,000.
Comparing Your Savings
To determine which approach will save you more on your federal income taxes, you need to know your marginal income tax rate. To figure your savings for using the tuition and fees deduction, multiply your marginal tax rate by your deduction, up to the $4,000 maximum, and compare the result with the value of your lifetime learning credit. For example, assume you are in the 15 percent tax bracket and have $7,000 of graduate school tuition. If you claim the tuition and fees deduction, you save $600 ($4,000 times 15 percent). If you claim the lifetime learning credit, you save $1,400 ($7,000 times 20 percent).
- IRS.gov: Publication 970
- Georgia State University: Marginal Tax Rates
- Internal Revenue Service. "Extended and Expired Legislation." Accessed Oct. 26, 2020.
- USA.gov. "Tax Law Changes." Accessed Oct. 26, 2020.
- Internal Revenue Service. "Questions and Answers About the 2018 Form 1040." Accessed Oct. 26, 2020.
- Internal Revenue Service. "Be Tax Ready – Understanding Tax Reform Changes Affecting Individuals and Families." Accessed Oct. 26, 2020.
- Internal Revenue Service. "Form 8917 Tuition and Fees Deduction," Page 2. Accessed Oct. 26, 2020.
- Internal Revenue Service. "Compare Education Credits and Tuition and Fees Deduction." Accessed Oct. 26, 2020.
- Internal Revenue Service. "File Form 1040-X to Amend a Tax Return." Accessed Oct. 26, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."