I am starting a series today dealing with federal tax tips for freelance writers and artists. Many times those working independently aren’t aware of the deductions and tax breaks they may be able to receive in a complicated and overwhelming, but surprisingly fair, system.
In this post I will look at the Lifetime Learning Credit, a straightforward and easy credit the taxpayer can take for any accredited course(s) taken at any accredited university or school. How easy is that?
First off, let’s see where it goes.
Form 8863, Education Credits, is where you would do the math to figure this entry (or your tax program will do it for you.) It has three parts.
Part I of the form is for the American Opportunity Credit, which I might go into in a later post. You may happily ignore it for now.
Part II is for the Lifetime Learning Credit. Part III is where you enter your personal and school information. If you realize it’s beneficial to fill out Part III of the 8868 first, you’re right.
You don’t have to fill in the other areas in Part III to take this credit.
The final figure, circled in green, is carried over to Section II of the 8863 form.
Who can take this credit? Anyone paying for higher education for themselves, their spouse (if filing jointly) or a dependent, such as a child. For purposes of this post, I will assume only the freelancer themselves will be claiming the credit.
What kind of classes are eligible? Any, as long as they carry credits. Doesn’t matter if it’s related to your work as a freelancer or not. You don’t need to be enrolled in a higher education program either.
Where must those classes have been taken? Any college, university or vocational school eligible to participate in a student aid program administered by the U.S. Department of Education. Most do; if in doubt, ask the school upfront with a quick call to the admin office. The taxpayer must have been enrolled for at least one academic period during the tax year. Prepaid courses count for the same year they were paid for. For example, if you paid for a course in December 2015 for the quarter that begins in January 2016, those payments are deductible for 2015.
What payments are deductible? Tuition! Plus any books, supplies, or equipment required to be paid to the institution as a condition of enrollment or attendance. For example, textbooks, lab fees, and safety goggles would count in order to take a biochemistry course, because the student would not be permitted to take the course without them. A medical dictionary, however, though useful, would not count, because it is optional on the part of the student.
What kinds of payments are deductible? Only those you made, even if the payments were made with through a loan or with a gift. Scholarships and financial aid do not count.
How will you know what you’ve paid for the year? Your education institution may mail you a Form 1098-T after the end of the year. It looks like this and has all the information you need to know.
If you have not received one, don’t sweat. Assuming there is no financial aid involved, all that matters are the tuition and required fees, and if you have a record or receipt of them, that is OK.
Limit: Up to $2,000 per return, depending on the calculations.
Restrictions: You cannot claim the credit if you are married filing separately, or are claimed as a dependent on someone else’s tax return. You cannot count the classes as a business expense, American Opportunity Credit, or any other type of deduction. Once they are claimed for Lifetime Learning they cannot be claimed or deducted anywhere else on the return.