Can you claim the Lifetime Learning Credit (LLC) for your taxes?
A tax credit is a dollar for dollar reduction in your tax bill. If you owe the IRS $ 1,000 because of underpayment of your taxes by that amount, a credit of $ 500 will reduce that liability in half.
There are two tax credits specially designed for students – the U.S. opportunity tax credit (AOTC) and the Lifetime Learning Credit (LLC). Both are extremely valuable on their own, but the LLC is actually much easier to qualify. Let’s explore.
How does the LLC work?
The LLC will allow you to claim eligible tuition fees if you are enrolled in undergraduate courses, graduate courses, or professional development courses. The great thing about LLC is that you don’t have to enroll in college per se. A local course to improve your professional skills, for example, might make you eligible. Plus, there is no limit to the number of years you can apply for the credit. With the AOTC, for example, you are limited to four years.
How much is the LLC worth?
The LLC is worth 20% up to $ 10,000 of qualifying education expenses, which means it reaches a maximum of $ 2,000 per year. However, unlike AOTC, which is partially refundable, LLC is not refundable at all. This means that all it can do is reduce your tax liability to $ 0. If you owe the IRS $ 1,000 and qualify for the full $ 2,000 the LLC will pay you, you will write off that $ 1,000 debt, but the IRS will not be required to send you the $ 1,000 remaining.
Are there any income limits associated with LLC?
Many tax credits are limited to low or moderate incomes, and the LLC is no exception. For the 2020 tax year (for which you file a tax return in 2021), you can claim the LLC in full if you are single and have Modified Adjusted Gross Income (MAGI) of $ 58,000 or less. If you are married and file a joint tax return, you can claim the LLC in full with a MAGI of $ 116,000 or less. Beyond these thresholds, credit begins to gradually disappear. If you are single, this is off the table once your MAGI exceeds $ 68,000, or $ 136,000 if you are married and file jointly.
For the 2021 tax year (for which you are filing in 2022), these income thresholds change. If you are single, you will be able to claim the full LLC with a MAGI of $ 59,000 or less, and the credit is completely waived if your MAGI exceeds $ 69,000. If you are married and file jointly, you get the full LLC with a MAGI of $ 119,000 or less, and beyond $ 139,000 you can no longer claim it.
Know your tax breaks
The LLC is just one of several credits that the IRS makes available to filers. There are also credits for low-income people, parents and those who pay for child care so that they can work. Make sure you educate yourself about tax credits while preparing your tax return, as this way you’ll pay the IRS as little as possible and keep more of your income to yourself.