Tax Tips for Families With College Students
A college education is expensive, and it can be even harder to manage if you have more than one child in college at a time. Tax credits are available for parents who help pay for their children's college tuition and expenses. Do your research to ensure you utilize these credits or deductions wisely and make the most of your money.
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American Opportunity Credit
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The American Opportunity Credit replaces the Hope Credit, and you can use it for the first four years of your child's undergraduate tuition costs. The tuition costs can be credited to your tax bill up to $2,500. In addition, you may be eligible to receive 40 percent of that money back in credits. You cannot use this credit at the same time as the Lifelong Learning Credit, but you can claim the credit for each eligible college student in your household. The school must be an accredited school and on the approved list with the IRS. If the college qualifies for federal student loans, it qualifies for the tax credit.
Lifelong Learning Credit
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The Lifelong Learning Credit is available for a student enrolled in college after the first two years. The amount you can credit towards your tax bill is 20 percent of the first $10,000 of your college expenses each year. The total expenses for your family counts, and you cannot claim this credit individually for people in your family. You cannot use the credit in conjunction with the American Opportunity Credit, but you can use it for graduate expenses and for students who are enrolled part-time in school.
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Student Loan Interest Deduction
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If you took out a qualified student loan for your child and made payments on that loan during the year, you can deduct up to $2,500 of the interest you paid during the year. If your student loan qualifies, the bank is required to send you a 1098-E form. The form will list the amount you paid in interest and the institution you paid it to. When you file your taxes, you will need to reference this form to take the deduction.
Dependent Status
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One way to continue to save money on your taxes is to claim your child as a dependent on your taxes. If you are providing the majority of his support while in school, you should be able to claim him. You will need to let your child know that you are claiming him as a dependent so that he does not file incorrectly. Many families choose to have their accountant file tax returns for their college students so that everything is done properly.
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References
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