Some say part of the purpose of higher education is to teach college kids how to be adults and prepare them for life in the "real world." If you've been on a university campus or snuck into a fraternity's 80s-themed kegger lately, you might counter that our schools are failing in this role. Sound decision-making may not exactly be a college student's forte, but it pays for them to weigh the pros and cons of the two school-related tax credits before choosing which one to take.
The American Opportunity Tax Credit (AOTC) offers students a slightly higher credit -- $2,500 -- than the Lifetime Learning Credit (LLC) for tuition and expenses. Unlike the LLC, the AOTC is partially refundable. If the government owes you money at the end of the year, you can add up to $1,000 worth of AOTC money to the tab. The AOTC also covers a wider economic spectrum of tax filers, with income limits up to $90,000 ($180,000 for joint filers) [source: IRS].
There are a few catches, however. First, the AOTC only applies to students who are pursuing a degree or another recognized credential and were enrolled at least part-time in at least one academic period during the tax year. It can't be claimed if the student has already taken advantage of the credit in each of the previous four years. It also can't be claimed by those who have completed four years of post-secondary education or have been convicted of a felony drug offense [source: IRS].