If you have children, somewhere in the last two months there’s a good chance you dropped a child off at college – for them to get acquainted with the school if they are a freshman or reacquainted if they’re an upper class-man. Those first few days or weeks, you’ve probably gotten a call about:
- How their roommate doesn’t like them;
- How their classes aren’t going right; or from
- Your daughter crying because her boyfriend broke up with her, or maybe your son crying because his boyfriend broke up with him.
But now, everything has settled in. Your child is two months into school and of course, they know everything, which is wonderful, because that’s what you always wanted for them. It’s time to see if there is anything that could be financially beneficial about the thousands of dollars that you are spending for this child to be omnipotent.
The answer is, yes, there is help available through the IRS, and it may actually relieve a bit of your financial burden. Some economic benefits that the IRS offers are:
- America Opportunity credit
- Lifetime Learning credit
These credits are available for you, your spouse, or your dependent as long as the expenses are qualified education expenses, and you/they are enrolled at an eligible educational institution, which describes 99.9% of all universities.
Other things that might be available to you are deductions, many of which depend on qualified education expenses:
- Tuition and fees
- Room and board
- Supplies and equipment
- Other necessary expenses such as transportation
If you qualify for both a deduction and a credit, you can pick and choose whichever would be better for you and your family.
Also don’t forget things that aren’t necessarily based directly on the tuition itself, such as student loan interest deduction. This deduction can be taken when you pay the loan back, as long as the loan was for you, your spouse, or your dependent.
After year end, be on the lookout for the following types of documents:
- 1099T, which will show the amount of tuition paid and or charged for your child.
- 1099Q, which you will receive if you took out money from a 529 plan to pay the tuition.
- 1098E, which will show student loan interest paid during the year.
As you start to gather your receipts/documents, another thing to remember before the end of the year are 529 plans and Coverdell education savings accounts. These can be effective ways of saving for college, whether your son or daughter is currently attending a college or university or not.
I cannot possibly go into all the income limitations that apply to each and every one of these credits and/or deductions. A useful tool for finding out if you qualify would be IRS publication 970, or you can call us anytime at 914-682-7007.