10/01/2013 02:59 pm ET Updated Jan 23, 2014

What You Need to Know About Education Tax Credit Considerations

Are you taking a personal finance course or courses to learn how to better manage your portfolio or retirement planning? If so, you may be sitting on some very valuable tax credits. There are many things your professor may not tell you about your taxes that can help improve your personal finances.

At its core, although seemingly very complex, the U.S. Tax system is fair and balanced with many tax benefits, deductions, credits and other areas allowing all taxpayers, high income, middle class and low income alike, who understand the rules and requirements to take tax benefits, lower their taxes and get a bigger tax refund. So let's look at how that finance class (or other courses) you're taking, may be a benefit to you come tax time.

To start with:
  • You may qualify for a tax credit for the cost of your tuition and fees as a college student. There are many different types of tax benefits available starting with the most common one, the American Opportunity Credit. This credit is partially refundable which can increase your tax refund. The credit is worth up to 2,500 per student with 40 percent of the credit, up to 1,000, allowed as a refundable credit. The balance of the credit is a nonrefundable credit and is used to reduce your tax liability to zero so your withholding and refundable credits can be issued as a refund. You must be a more than half time student in your first four-year of a degree or certificate program and must not have a conviction for a felony drug offense. In addition, you must be attending an accredited institution. Most colleges and trade schools that qualify for the federal student loan program are accredited institutions.
  • If you are attending school less than half-time, for continuing education to maintain your credentials, or just to learn something new, you may be eligible to claim the Lifetime Learning credit as well. This credit allows a credit of 20 percent of the cost of tuition and fees paid to a college or trade school for a maximum credit of up to 2,000. This credit is nonrefundable only, which means you can reduce your taxes with the credit, but you can't claim any remaining credit as a refund. You don't have to be enrolled in a degree or certificate program, can be in school beyond the first four years of your education, and there is no restriction if you have a felony drug charge.
  • If you are taking a course to maintain your knowledge for your job or to maintain your credentials and you don't qualify for the American Opportunity or Lifetime Learning credit you may qualify for the Tuition and Fees deduction. While this is a deduction and doesn't lower your taxes as far as the credits do, you can use the deduction to lower your taxes. You may claim a deduction of up to4,000 if you paid tuition and fees expenses for yourself, your spouse, or a dependent.
  • Many students are unable to complete their education without the aid of Student Loans. You may be able to deduct up to 2,500 of the student interest you paid during the year as an adjustment to income. You may claim the student loan interest deduction and either one of the credits or the Tuition and Fees deduction in the same year.

As you consider how your education may be a tax benefit, remember, understanding your taxes, the tax rules, and life changes, can help you keep more of your money. There are dozens of tax credits and hundreds of deductions and the rules change almost every year. Know the rules, apply them to your situation and get a bigger tax refund -- it's that simple.

For those of you cringing at the thought of dealing with your taxes, you can always hire someone to help you. There are many good and quality tax professionals in the market, so you're bound to find one that is right for you.