Only one tax break per filer
The IRS also frowns on double dipping in the tax-break pool. You can't claim the tuition-and-fees deduction if you also take the lifetime learning credit or the American opportunity credit for the same student in the same tax year.
In addition, in deciding which tax break to use, make sure you choose the optimal one if you qualify for several education-assistance options. You might be tempted to go for the tuition-and-fees deduction. After all, it's worth $4,000 and relatively easy to claim.
The credit amounts, meanwhile, are less: a maximum of $2,000 for the lifetime learning and $2,500 for the American opportunity credits. Those figures mean the larger tuition-and-fees deduction is the way to go, right?
Not so fast. You're comparing an apple (a tax deduction) to oranges (tax credits).
A tax deduction reduces your taxable income, while a credit reduces your actual tax bill. In almost every instance, a credit is preferable.
For a quick comparison of the educational tax breaks, multiply your deductible schooling costs by your tax rate to see how it matches up with the credits. For example, a $4,000 deduction for a taxpayer in the 25 percent tax bracket comes to an actual tax break of only $1,000.
So, if you have a choice of how to take your education tax break, run the numbers both ways to make sure you take the one that saves you more.
Additional tax-filing homework
While the tuition-and-fees deduction is available for taxpayers who don't itemize their expenses, there is a bit more paperwork involved in taking this deduction.
If you claim this education expenses deduction, either on Form 1040 or Form 1040A, you must now fill out Form 8917.
Once you complete Form 8917 and transfer the appropriate amount to your 1040 or 1040A, be sure to send the form along with your final tax return.
In addition to the information found in the Form 8917 instructions (which are part of the downloadable form itself), you can learn more about the tuition-and-fees deduction and other education tax breaks in IRS Publication 970, Tax Benefits for Education.