College Costs

• College costs add up quickly. According to college finance website CollegeData, the average annual cost to attend a public university in 2011 -- based on a "moderate" budget -- was $20,339. That figure soared to $40,476 for attendance at a private university. These expenses consist of tuition, university fees, housing, meals, books and transportation. The IRS offers two tax credits to help offset these expenses: the American Opportunity Tax Credit and the Lifetime Learning Credit. Most students, or their parents, paying tuition to postsecondary institutions qualify for these credits. Taxpayers may only claim one of these credits per student per year; you cannot claim both.
  
  

American Opportunity Credit

• The American Opportunity Credit is a $2,500 tax credit the IRS issues to offset your tax bill with any balance remaining paid as a tax refund. For tax filers with no tax bill, 40 percent of this credit is refundable and up to $1,000 will be sent to you as a refund. This credit is available for the first four years of college. Eligible students must be pursuing an undergraduate degree or recognized educational credential and must be enrolled at least half time, according to the IRS guidelines. Taxpayers earning more than $80,000 ($160,000 for married couples filing a joint return) are not eligible for this tax credit.
  
  

Lifetime Learning Credit

• The Lifetime Learning Credit is designed to encourage continued education for adults with a focus on improving existing job skills. If eligible, you'll receive a Lifetime Learning Credit of up to $2,000 based upon the amount of tax you owe on your return. This credit is available for all years of postsecondary study, and the student is not required to pursue a specific degree or education credential. Taxpayers earning more than $60,000 ($120,000 for married couples filing a joint return) are not eligible for this tax credit.
  
  

Other Tax Deductions

• Taxpayers who do not meet the requirements for the American Opportunity Credit and the Lifetime Learning Credit may qualify to deduct some or all of their postsecondary expenses from their adjusted gross income. The IRS caps the deduction at $4,000, and you may not claim this deduction if you claim either the American Opportunity or Lifetime Learning credit on the same return. Taxpayers earning more than $80,000 ($160,000 for married couples filing a joint return) cannot claim these deductions.