 Income Tax 2022-2023, Lifetime Learning Credit Overview. 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 here in the credit area of the formula, in the first half of the income tax formula is, in essence, an income statement, although a strange one. Bottom line, taxable income similar to net income. Bottom line of a normal income statement. We then calculate the tax on the taxable income, not using one rate, not using a flat tax, but using a progressive tax system to get to the tax before credits and other taxes. We then finally get to the credits and other taxes like self-employment tax and whatnot. And then we get to the amount that we paid in the form of withholdings or estimated tax payments to get to the tax refund or tax due. Also, remember that credits are similar to deductions and that we like them both. But if we can get a dollar credit versus a dollar deduction, we would typically rather have the credits because we get the full dollar of benefit as opposed to the dollar deduction, which will simply be decreasing the taxable income by that dollar and the benefit will be dependent on our tax rate. Also, note that we have the non-refundable credits and refundable support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need and can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Credits, non-refundable credits do not bring the tax liability below zero, whereas the refundable credits can, meaning that that refundable portion is using the tax code more like a benefit or well-filled program at that point as opposed to an income tax type of system. Okay, we're now on the lifetime learning credits. We're thinking about the educational tax credits. As we do so, you'll recall in prior presentations we said there's basically two credits, one's going to be the American Opportunity Credit, the other the Lifetime Learning Credit, the American Opportunity Credit is one that usually results in a bigger benefit but is more restrictive to qualify for, and if you don't qualify for that one, then we default to the Lifetime Learning Credit, which is our focus at this time. All right, the Lifetime Learning Credit Reminders. Modified Adjusted Gross Income, the MAGI, for 2022 the amount of your Lifetime Learning Credit is gradually reduced phased out if your MAGI, basically your income threshold phased out, is between 80,000 and 90,000 or 160,000 and 180,000 if you file a joint return. You can't claim the credit if your MAGI is 90,000 or more, 180,000 or more if you file a joint return. For more information, see Figuring the Credit. We'll talk more about that later. Form 1098T, requirement to be eligible to claim the Lifetime Learning Credit, the law requires a taxpayer or a dependent to have received form 1098T tuition statement from an eligible educational institution whether domestic or foreign. So if you don't get that, then typically you want to talk to the institution and make sure that you can get that because usually you're going to get it and they will also send one generally to the government as well. So you want to be making sure you're in compliance with 1098T however, the amount reported on 1098T might not necessarily coincide with the actual expenses because of other circumstances that we'll talk more about later, but you would think that the government still wants to make sure the 1098T is in essence a requirement because that will at least verify that someone did go to a college of some kind, even if the expenses recorded on the 1098T are not exactly correct depending on the circumstances of an individual. However, so you may be able to claim the credit if the student doesn't receive a form 1098T because students educational institution isn't required to furnish a form 1098T to the student under existing rules. So for example, if the student is a qualified non-resident alien, has qualified education expenses paid entirely with scholarship, has a qualified education expenses paid under a formal billing arrangement, or is enrolled in courses for which no academic credit is awarded. Those might be more unusual circumstances normally if you qualify for the credit you would think you would get a form 1098T if you don't contact the institution, the educational institution. If a student's educational institution isn't required to provide a form 1098T to the student, you may claim the credit without a form 1098T if you otherwise qualify can demonstrate that you or a dependent were enrolled at an eligible educational institution and can substantiate the payment of qualified tuition and related expenses. You may also claim the credit if the student attended an eligible educational institution required to furnish form 1098T but the student doesn't receive form 1098T before you file your tax return. For example, if the institution is otherwise required to furnish form 1098T and doesn't furnish it or refuses to do so and you take the following required steps after January 31st, 2023 but before you file your 2022 tax return you or the student must request that the educational institution furnish a form 1098T so they don't send one out, if you did have sent one out you're gonna do your due diligence and try to get them to send one out and if they don't and you did your due diligence then you may still be able to file for the credit even though you didn't get one. So you must fully cooperate with the educational institution's efforts to gather the information needed to furnish the form 1098T so if they say we're not giving you it because you didn't give us the stuff full name or your address or something for us to furnish it well then that's kind of your fault you gotta give them the information so they can put it on the 1098T so you must also otherwise qualify for the benefit be able to demonstrate that you or a dependent were enrolled at an eligible educational institution and substantiate the payment of qualified tuition and related expenses. Alright, introduction for 2022 there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax they are the American Opportunity Credit and the Lifetime Learning Credit we're focused here on the Lifetime Learning side of things. This chapter discusses the Lifetime Learning Credit the American Opportunity Credit is discussed in Chapter 2 if you want to go to that publication and dive into it more we talked about it in prior presentations this chapter explains who can claim the Lifetime Learning Credit what expenses qualify for the credit who is an eligible student who can claim a dependent's expenses how to figure the credit how to claim the credit and when the credit must be repaid. Alright so what is the tax benefit of the Lifetime Learning Credit you ask for the tax year you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for all eligible students notice that dollar threshold is lower than the maximum of the American Opportunity Credit which would be the first credit you'd probably try to attempt to qualify for and if not default to the Lifetime Learning that has the max of the 2,000 there is no limit on the number of years the Lifetime Learning Credit can be claimed for each student which is again different than the American Opportunity Credit it's more broad to be able to qualify for a tax credit reduces the amount of income tax you may have to pay unlike deduction which reduces the amount of income subject to tax a credit directly reduces the tax itself so if we got the option of either taking the expenses as a deduction or a credit often times the credit would be more beneficial because we get the full amount of the credit dollar for as opposed to decreasing the income and then our benefit being subject to our income tax rate the Lifetime Learning Credit is a non-refundable credit meaning it doesn't take your tax liability below zero unlike a portion of the American Opportunity Credit which has a refundable portion to it so it's less of a benefit for the Lifetime Learning Credit another reason why we would normally go for the American Opportunity Credit first and if not able to get it so this means that it can reduce your tax to zero but if the credit is more than your tax the excess won't be refunded to you so your allowable Lifetime Learning Credit may be limited by the amount of your income and the amount of your tax so it could have an income phase out as your income goes up can you claim more than one education credit this year so for each student you can elect for any year only one of the credits for example if you elect to claim the Lifetime Learning Credit for a child on your 2022 tax return you can't for that same child also claim the American Opportunity Credit so you can't use the same expenses to take the two credits you have to choose between one or the other you can imagine a situation where you have two children two dependents and then possibly you have one that qualifies for the American Opportunity that qualifies for the Lifetime Learning or something like that but you can't use the same expenses to qualify for the two credits for example if you are eligible to claim the Lifetime Learning Credit and you are also eligible to claim the American Opportunity Credit for the same student in the same year you can choose to claim either credit but not both so in that situation you would usually want the American Opportunity Credit because it would be higher of a benefit most of the time if not all the time so it's only when you don't qualify for that that you might default to the Lifetime Learning is the general idea so if you pay qualified education expenses for more than one student in the same year so say you are a parent with multiple kids that are going to college you can choose to claim certain credits on a per student per year basis so this means that for example you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for another student in the same year so most of the time you might say it wouldn't seem that you would have the American Opportunity Credit and the Lifetime Learning Credit on the same tax return for the same year but it's possible if you had two different people on that tax return that were going to college so differences between the American Opportunity and Lifetime Learning Credits there are several differences between these two credits for example you can claim the American Opportunity Credit for the same student for no more than four tax years however there is no limit on the number of years for which you can claim the Lifetime Learning Credit based on the same student's expenses so you have more years to be able to take the credit and that's why if you don't qualify for the American Opportunity and the standard rules that you may qualify for for the Lifetime Learning the differences between these credits are shown in the appendix near the end of this publication