The American Opportunity Credit and the Lifetime Learning Credit may help you pay for the costs of higher education. If you pay tuition and fees for yourself, your spouse or your dependent you may qualify for these credits.

Here are some facts the IRS wants you to know about these important credits:

The American Opportunity Credit

• The AOTC is worth up to $2,500 per eligible student.
• The credit is available for the first four years of higher education at an eligible college, university or vocational school.
• The credit lowers your taxes and is partially refundable. This means you could get a refund of up to $1,000 even if you owe zero tax.
• An eligible student must be working toward a degree, certificate or other recognized credential.
• The student must be enrolled at least half time for at least one academic period that began during the year.
• You generally can claim the costs of tuition and required fees, books and other required course materials. Other expenses, such as room and board, do not qualify.

The Lifetime Learning Credit

• The credit is worth up to $2,000 per tax return per year. The yearly limit applies no matter how many students are eligible for the credit.
• The credit is nonrefundable. This means the amount you can claim is limited to the amount of tax you owe.
• The credit is available for all years of higher education. This includes courses taken to acquire or improve job skills.
• You can claim the costs of tuition and fees required for enrollment or attendance. This includes amounts you were required to pay to the institution for course-related books, supplies and equipment.

You cannot claim either of these credits if someone else claims you as a dependent on his or her tax return. Both credits are subject to income limitations and may be reduced or eliminated depending on your income.

Keep in mind that you can’t claim both credits for the same student in the same year. You may not claim both credits for the same expense. Parents or students claiming either credit should receive a Form 1098-T, Tuition Statement, from their educational institution. You should make sure it is complete and correct.

Find out more details about these credits and other college tax benefits in Publication 970, Tax Benefits for Education. You can get the booklet at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Publication 970, Tax Benefits for Education
• Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

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If you are self-employed, the IRS wants you to know about a tax deduction generally available to people who are self-employed.

The deduction is for medical, dental or long-term care insurance premiums that self-employed people often pay for themselves, their spouse and their dependents. The insurance can also cover your child who was under age 27 at the end of 2012, even if the child was not your dependent.

You may be able to take this deduction if one of the following applies to you:

• You had a net profit from self-employment. You would report this on a Schedule C, Profit or Loss From Business, Schedule C-EZ, Net Profit From Business, or Schedule F, Profit or Loss From Farming.
• You had self-employment earnings as a partner reported to you on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.
• You used an optional method to figure your net earnings from self-employment on Schedule SE, Self-Employment Tax.
• You were paid wages reported on Form W-2, Wage and Tax Statement, as a shareholder who owns more than two percent of the outstanding stock of an S corporation.

There are also some rules that apply to how the insurance plan is established. Follow these guidelines to make sure the plan qualifies:

• If you’re self-employed and file Schedule C, C-EZ, or F, the policy can be in your name or in your business’ name.
• If you’re a partner, the policy can be in your name or the partnership’s name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the partnership must reimburse you and include the premiums as income on your Schedule K-1.
• If you’re an S corporation shareholder, the policy can be in your name or the S corporation’s name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the S corporation must reimburse you and include the premiums as wage income on your Form W-2.

For more information, see Publication 535, Business Expenses. It’s available at IRS.gov or by calling800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Small Business and Self-Employed Tax Center
• Publication 535, Business Expenses
• Publication 225, Farmer’s Tax Guide
• Schedule C, Profit or Loss From Business
• Schedule C-EZ, Net Profit From Business
• Schedule F, Profit or Loss From Farming

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