If you're paying for school, chances are you'll take any extra tax deductions you can get to lower your tax bill. The IRS offers two education-related deductions: the tuition and fees deduction and the work-related education deduction. You may also be eligible to claim the American Opportunity Credit or Lifetime Learning Credit for your education expenses. To be deductible, the costs have to be paid to a post-secondary school, such as a college, trade school or grad school.
Generally, you can include all your tuition when figuring your education tax breaks. However, you can't include tuition for sports, games, hobbies or other non-credit courses unless they are required as part of your degree program. For example, if you're taking a bowling course and you're an engineering major, you can't include that tuition cost unless its a required general education credit. However, if you're studying to be a gym teacher and your major requires you to take several sports courses, you can include those costs.
Most mandatory fees count towards figuring your education tax break as long as they are required for you to attend the school. For example, if the school charges a technology fee to all students, you can include that cost. However, optional costs and certain other costs aren't deductible even if required. Non-deductible fees include insurance costs or medical fees, including student health center fees. For example, if you elected to pay for student tickets to the school's basketball team, you can't deduct that as a fee.
Books and Supplies
Books and supplies that you aren't forced to purchase from the school can't be included in figuring the tuition and fees deduction or the Lifetime Learning Credit. However, if you're claiming either the American Opportunity Credit or the work-related education deduction, you can include books and supplies. The American Opportunity Credit is only available for your first four years of post-secondary education. You also have to be enrolled at least half-time, have no felony drug convictions on your record, and have your income fall below the annual limits. The work-related education deduction is a miscellaneous deduction, so you can only deduct the portion that exceeds 2 percent of your adjusted gross income.
Tax-Free Aid Reduction
When figuring your tax benefits, reduce your educational expenses by the amount of tax-free aid you receive. Examples of tax-free aid include Pell grants, scholarships and veterans' educational assistance. However, it doesn't include loans, your savings, gifts from others or your inheritance. For example, if your costs total $25,000, but your scholarship pays for $22,000, you've only got $3,000 of expenses for your education tax benefits.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."