The Connection Between Education Expenses and Tax Deductions

Education is an investment—and fortunately, the IRS agrees. Whether you’re paying for college, graduate school, or continuing education, some of those costs could reduce your tax bill. Here’s how education expenses and tax savings connect in 2025 and beyond.

1. What Counts as Eligible Education Expenses?
Qualified education expenses can include:

Tuition and mandatory enrollment fees

Books, supplies, and equipment required for coursework

Room and board (if you’re at least a half-time student and it’s required for enrollment)

Keep all receipts and payment records—proof is everything when the IRS comes knocking.

2. Key Education Tax Benefits for 2025
The IRS offers a few powerful tools to help reduce the financial burden of education. While deductions reduce taxable income, credits directly reduce your tax liability—so they’re often even more valuable.

American Opportunity Credit (AOTC)
Up to $2,500 per eligible student

For the first four years of post-secondary education

100% of the first $2,000, plus 25% of the next $2,000

Partially refundable (up to $1,000)

Lifetime Learning Credit (LLC)
Up to $2,000 per tax return (not per student)

For any post-secondary education or skills training

Not refundable, but flexible and available even if you’re not pursuing a degree

Student Loan Interest Deduction
Deduct up to $2,500 in interest paid on qualified student loans

Phases out at higher income levels

The Tuition and Fees Deduction expired in 2020 and is no longer available. If you see it in old tax guides, skip it.

3. Eligibility Requirements
Each credit or deduction has its own rules. Here are the big ones:

Income limits apply: Both AOTC and LLC start phasing out above $80,000 for single filers ($160,000 for joint filers).

Institution matters: The school must be an eligible educational institution, accredited and recognized by the U.S. Department of Education.

Enrollment status: Full-time vs. part-time can affect which credits you qualify for.

Tip: You can’t double-dip. Expenses used for one credit can’t be reused for another.

4. Tax Planning Around Education
Planning ahead can help you get the most out of these benefits. Consider:

Timing payments for tuition to align with the tax year you’ll claim the credit.

Claiming AOTC for undergraduate years, then switching to LLC for grad school or part-time learning.

Exploring 529 plans, which allow tax-free growth and withdrawals for qualified education expenses.

5. Let Software (or a Pro) Do the Heavy Lifting
Tax software like TurboTax, TaxSlayer, or H&R Block can help identify education credits you qualify for. But if you’ve got multiple students, income phase-outs, or questions—bring in a pro (hint: us!).

Final Thought from Jennifer
Education may be expensive, but the tax code offers some real silver linings. With smart planning and a little organization, your tax return can help cushion the cost of tuition.

Questions about how education fits into your tax plan? Reach out to Walker Total Financial—we’ll help you pass the test (no studying required).