Knowledge is power. Boning up on the old book smarts can also help you save a little money when the tax man comes knocking. The savings primarily come from two federal tax credits: the Lifetime Learning Credit and the American Opportunity Tax Credit. Each can be used to reduce the amount of money that you'll have to kick back to Uncle Sam at the end of the year. However, students -- or their parents -- can't use both at the same time, so it's important to understand the differences between these two opportunities to stash a little extra cash.
The Lifetime Learning Credit reduces federal tax obligations for a wide range of students in an effort to cut down on costs associated with tuition and expenses. The up to $2,000 annual credit is available to learners -- or their parents -- who are enrolled in an eligible program and meet certain income requirements [source: IRS].
The Internal Revenue Service is serious when they say "lifetime learning." You don't have to be a certain age in order to be eligible for the credit. You also don't have to be actually pursuing a degree. That doesn't mean, however, that the needlework class you're taking at the YMCA counts. The courses for which a student seeks the credit must be provided by an approved educational institution. While you don't have to actually graduate at some point to be eligible, you do have to be able to prove that the coursework is aimed at improving job-related skills [sources: IRS].
To obtain the credit, a student or an individual or family that lists the student as a dependent must complete an IRS Form 1098-T. If your school sends you one of these forms, that's a good indication that it's recognized by the government for Lifetime Learning Credit purposes. [sources: IRS].