March Madness - A Hard Education

Enlightenment can come at any age, at any time. And for eight groups of young men, it came in the latest round of the NCAA College Basketball Tournament.

The UCLA Bruins, for example, learned there was a reason the Florida Gators were top seeds in the South. And the Dayton Flyers have apparently mastered the art of staying airborne for long periods of time. Just ask Stanford.

And Then There Were Eight

UCLA made a real game out of their contest with Florida, but the Gators prevailed, 79-68. Dayton managed a 10-point cushion between them and Stanford, 82-72. Go Flyers!

In the West, Arizona advanced by downing the Aztecs of San Deigo State, 70-64. And Wisconsin ended the Bears’ dream season, topping Baylor 69-52.

The barn-burner of the evening proved to be the Tennessee-Michigan matchup. The Wolverines led by 10 most of the game, and the Volunteers gave it everything they had in the second half. But Michigan held on by their claws for a 73-71 ticket to the Elite Eight.

The Iowa State Cyclones just weren’t strong enough to blow the Connecticut Huskies out of their way. Iowa State trailed all night and managed to battle their way to within 5 in the closing seconds. But the Huskies pulled away with less than 10 seconds left for an 81-76 win.

The Real Reason for College

In order to have college athletics, you have to have college academics, of course. Each one of the players in the tournament is, first and foremost, a student at their respective institution. And while they are given a “free ride” to a college degree in exchange for their athletic ability, the bulk of college students may not have that luxury.

Enter the educational credit.

The individual 1040 return gives the taxpayer – either the student or their tuition-paying-parent – a chance to recoup some of the tuition and fees they’ve shelled out over the previous tax year. There are two credits available.

But only one of those two choices can be used on any one return. And there are some differences between them that bear mentioning.

American Opportunity Credit

This credit is worth up to $2,500 per eligible student – but it’s only available for the first four years at a qualified college or tech school. (If you have more than one dependent in college, this is the credit for you.)

The student must be earning a degree or some other recognized credential, and must attend school at least half-time for at least one academic period that started during the tax year. And the credit is normally subtracted from taxes, but can also give the taxpayer a refund of up to $1,000 if it’s more than your taxes.

Lifetime Learning Credit

In contrast, the Lifetime Learning Credit is good for all years of higher education, including classes for learning or improving job skills. This is also the credit for taxpayers going for advanced degrees such as Master’s or Doctorate.

The credit is limited, though, to $2,000 per tax return, per year – no matter how many students qualify. The amount of the credit is capped at the amount of your taxes. It takes in the cost of tuition and required fees, plus books, supplies and equipment that the student had to buy from the school.

In Either Case

The IRS has some helpful hints it wants to pass along, no matter which credit you decide to use. First, you’ll use Form 8863 – Education Credits – to claim them. In 1040.com, click Review at top left, then scroll down to the Federal Forms Search Box and type in “8863.” Hit Enter, and choose the “1098-T and Education Expenses” form. We’ve merged the 8863 with the 1098-T for ease of input.

You should have a 1098-T form from the school reporting your expenses. Make sure it’s correct before you enter it into your return.

Remember, you won’t be allowed to claim either credit if someone else claims you as a dependent; and you can’t claim both credits for the same student – or for the same expense – in the same year. There are income limits for qualification.

Not sure if you qualify for the credits? Use the IRS’ Interactive Tax Assistant tool to check it out.