Education is a wonderful thing. But did you know that it’s even more wonderful because it is tax advantaged?

But there’s many things we must understand, most notably, the tax expenses, deductions and credits!

And since the law will allow you to take the bigger number of tax expenses, versus a tax credit versus a deduction, one must calculate which education credit or education deduction gives you the largest refund.

Expenses & Deductions
Up to $4,000 in qualified education expenses can be deducted on your tax return if your modified adjusted gross income is not more than $65,000 ($130,000 if married). If your modified adjusted gross income is higher than $65,000 ($130,000 if married) but less than $80,000 ($160,000 if married), you can deduct up to $2,000 of qualified education expenses.

If you choose to deduct the education expenses, you can’t take the American Opportunity Credit or Lifetime Learning Credit on the same student’s education expenses. It depends on each taxpayer’s circumstances whether it is better to deduct the education expenses or take the American Opportunity Credit or Lifetime Learning Credit.

If you are claimed as a dependent on your parents’ tax return, you aren’t eligible to claim an education credit or deduction. Your parents, or whoever is claiming you as a dependent, are the ones who are eligible to claim the education credit or deduction for the tuition paid for you, whether or not you or your parents actually paid the tuition.

Tax Credits
The American Opportunity Credit is a credit of up to $2,500 per student for education expenses, including course materials expenses such as books, supplies, and equipment needed for a course of study. It can be claimed each year during the first four years of college and post-secondary education.

The amount of the American Opportunity Credit is 100 percent of the first $2,000 of qualified expenses and 25 percent of the next $2,000 paid. Up to 40 percent of the credit (up to $1,000) can be refundable. The American Opportunity Credit is almost always the best education credit to take if you qualify for it.

If you qualify for the American Opportunity Credit, you’ll almost always get a larger refund using that credit. If you don’t qualify for the American Opportunity Credit, the Lifetime Learning Credit is often the next best choice.

The Lifetime Learning Credit is a credit of up to $2,000 per student. The credit is 20 percent of any tuition or class fees paid up to $10,000 (for a total allowable credit of $2,000). Books, supplies, and equipment are only eligible expenses if they are required to be paid to the institution as a condition of enrollment or attendance. The credit phases out for married taxpayers with adjusted gross income between $114,000 and $134,000. For single taxpayers and others not filing a joint tax return, the adjusted gross income phase out is between $57,000 and $67,000. If your income is too high to take the Lifetime Learning Credit you may still be eligible to claim the education deduction .

These rules are tricky but generally speaking here goes your best tip:

While expenses are deductible, as per your tax bracket, credits, are x dollar for dollar deduction.

So in short, if you spent $5,000 on education and your in a 20 percent federal tax bracket, your educational deductions will total $1,000 while tax credits could equal up to $5,000.

Professor Anthony Rivieccio, MBA PFA, is the founder and CEO of The Financial Advisors Group, celebrating its 24th year as a fee-only financial planning firm specializing in solving one’s financial problems. Mr. Rivieccio, a recognized financial expert since 1986, has been featured by many national and local media including: Kiplinger’s Personal Finance, The New York Post, News 12 The Bronx, Bloomberg News Radio, BronxNet Television, the Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Co-Op City News, The Bronx News, thisisthebronX.info and The Bronx Chronicle. Mr.  Rivieccio also pens a financial article called “Money Talk”. Anthony is also currently an Adjunct Professor of Business, Finance & Accounting for both, City University of New York & Monroe College, a Private University.