Ineligible Education Expenses for Education-related Tax Credits

school supplies photoPencils. Erasers. Trapper Keepers. These are school supplies that instantly bring back memories of one’s education. Of course, nowadays that list would be more laptops, tablets, and phones—but, still.

Now that we’re in the thick of the school season, it’s a prime time to go over some of the education-related tax benefits afforded to parents and students as they ready their 2014 tax returns. These benefits include tax credits, student loan interest deductions, savings bonds, and many more can help pay toward someone’s education. And sometimes they can even help out your tax situation, too.

Though it’s been a while since we’ve been in grade school, we here at Padgett are very familiar with taking classes. As enrolled agents, we’re required to take classes on the latest tax rules every three years. Follow along our next series as we go over some education-related benefits to your tax return.

Ineligible Education Expenses for Education-related Tax Credits

As we went over in our last post, there are a number of expenses that qualify for the American Opportunity Tax Credit and the Lifetime Learning Credit. Of course that doesn’t cover everything a student pays for over the course of a semester. Here are some of the expenses that students may not apply these helpful tax credits to.

Expenses that do not qualify under either credit include room and board, insurance, medical expenses (including student health fees), transportation costs, and personal expenses, which includes family and and living expenses.

Additionally, according to the IRS itself, “Expenses for sports, games, hobbies or non-credit courses do not qualify for the education credits or tuition and fees deduction, except when the course or activity is part of the student’s degree program. For the Lifetime Learning Credit only, these expenses qualify if the course helps the student acquire or improve job skills.”

Non-credit courses do not count, unless the course is required to graduate. The only exception exists in the Lifetime Learning Credit when a non-credit course is taken to improve job skills. It can then be rationalized as an eligible expense.

Do you have the support you need to manage your small business bookkeeping? Schedule a 30-minute appointment to speak with a local small business adviser.