 Income tax 2022-2023. Lifetime learning credit. Can you claim the credit? Let's do some wealth preservation with some tax preparation. Most of this information comes from Publication 970, Tax Benefits for Education Tax Year 2022. You can find it on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're down on the bottom portion where the credits are located. Remember, in the first half of the income tax formula is in essence an income statement, although a strange one ending at the taxable income similar to net income, the bottom line of a normal income statement. We calculate the tax on the taxable income, not using one rate, but using the progressive tax system to get to the tax before credits and other taxes. Then finally, we're down to where the credits are and other taxes like self-employment tax, for example. And then we have the payments, withdrawals, and estimated tax payments to get to the tax refund or tax due. Also, note that the credits are similar to deductions in that we like them both, but if we can get a dollar credit versus a dollar deduction, we would rather have the credit usually because we get the full dollar of benefit, whereas a dollar deduction simply decreases the taxable income and the benefit will then be subject on the tax rate that we have. Also, remember that we have the credits for a non-refundable credits versus the refundable credits. Non-refundable credits do not take the tax liability below zero. Refundable credits can, and when they do, it's using the tax code not as a tax system so much as a welfare or benefit program for that refundable portion. That said, we're moving on to the lifetime learning credit. Remembering that there are American opportunity credit, lifetime learning credit. You would typically be going for the American opportunity credit. If you can't get it, then we go to the broader category of the lifetime learning credit for these two educational credits. Alright, so can you claim the credit? The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. Who can claim the credit? Generally, you can claim the lifetime learning credit if all three of the following requirements are met. You pay qualified education expenses of higher education. We have that same question of what exactly is qualified education expenses. Obviously, tuition usually would be part of it, but it could be more expansive than that. Next one, you pay the education expenses for an eligible student. In this word here, what exactly does it mean to be eligible student for the lifetime learning credit? And then the next one, the eligible student is either yourself, your spouse, or a dependent. You claim on your tax return. So you're doing your tax return. You've got some social security number on your tax return of you, a spouse, dependents. If any of those individuals are the people that incurred the expenses related to higher education, then possibly you can take the lifetime learning credit or could qualify. Let's take a look at an overview of the lifetime learning credit for 2022. Remember that you can compare these to what we have for the American opportunity credit. And we're just looking at the lifetime learning credit, in this case focusing in there. But if you can qualify for the American opportunity credit, then you would take that one usually. And then the broader expanded credit is the lifetime learning, which could pick up those items or those times when you don't qualify for the American opportunity. All right, the maximum credit limit on the model. So the maximum credit is up to $2,000, which is less than the American opportunity up to 2,500 limit on modified adjusted gross income. So there's an AGI phase out of 180,000 if married filing joint, 90,000 if single head of household or qualifying surviving spouse, refundable or non refundable. It's non refundable. Remember the American opportunity credit has a refundable portion to it, which is more of a benefit. Generally, none of the lifetime learning credit is going to give you a benefit. If your tax liability goes below zero, it's non refundable. So the credit limited to the amount of tax you must pay on your taxable income. Number of years of post-secondary education available for all years of post-secondary education and for courses to acquire or improve job skills. That's more inclusive by far than the American opportunity credit, making it more likely that you would qualify for the lifetime learning, even if you don't qualify for the American opportunity credit. Number of tax years credit available for an unlimited number of tax years, which is of course more than the four years available for the American opportunity credit type of program required. Student doesn't need to be pursuing a program leading to a degree or other recognized educational credential, which again is different than the American opportunity credit more expansive, more likely that you would qualify for the lifetime learning. Number of courses available for one or more courses, also more expansive than the American opportunity credit where you had to be like a half-time student. Felony drug conviction. Felony drug conviction don't make the student ineligible. So even if you had a felony drug convention, which they kind of threw into the other credit, it's not part of this credit. Qualified expenses, tuition and fees. So in other words, you're not restricted based on this kind of somewhat arbitrary rule. Again, I think they threw that rule in there, even though it's not really related to education kind of stuff, because maybe people were selling drugs to college kids on the college campuses or something like that was going on. But anyways, that was thrown in for the American opportunity credit, but not on the lifetime learning. Alright, qualified expenses, tuition and fees required for enrollment or attendance, including amounts required to be paid to the institution for course related books, supplies and equipment. So this one is a little bit more restrictive in terms of the type of expenses that you can take. So tuition and fees required for enrollment or attendance, including amounts required to be paid to the institution, to the institution. Here, key term for course related books, supplies and equipment. Payments for academic periods, payments made in 2022 for academic periods beginning in 2022 or beginning in the first three months of 2023. So you have that same cut off situation where you're on a cash based system for the most part for taxes, you paid for it in 2022. Even though the course didn't start until 2023, then you would still get the benefit in 2022 as long as you're not abusing it. That's why they have that three month rule on the cash based kind of system. So who can't claim the credit? You can't claim the lifetime learning credit for 2022. If any of the following apply, your filing status is married filing separately. So note if you're married, you can file joint or separate generally. Oftentimes you can't claim credits or some credits when you file separately. Most likely because the IRS is skeptical that you're taking advantage of like the AGI income thresholds and the phase outs. So you are listed as a dependent on another person's tax return, such as your parents, see who can claim a dependent expenses. So if you are dependent on someone else's tax return, you're being claimed as a dependent, you would think that someone could get the benefit, but not the student in that case would be the person claiming possibly a parent, for example. You're modified at just a gross income. Your MAGI income phase out here is 90,000 or more, 180,000 or more if filing married filing jointly. The MAGI is explained later under effect of the amount of your income on amount of your credit. So you or your spouse were a non-resident alien for any part of 2022 and the non-resident alien didn't elect to be treated as a resident alien for tax purposes. More information on non-resident aliens can be found in Publication 519. If you want to dive into that in more detail, you can claim the American Opportunity Credit C Chapter 2 for the same student in 2022. In other words, if you can claim the American Opportunity Credit, normally you would do that because it would be more beneficial than the Lifetime Learning Credit.