Kids get the degrees; parents get the bills, and the tax breaks.
graduation day image by Gina Smith from Fotolia.com
Nail biting and stress may abound at your home as teens await acceptance letters from one or more colleges. You may experience the same jittery nerves when the thought of tuition comes to mind. Fortunately, help awaits you and your budget at year-end when you prepare to file your tax return. By the time your child is a senior, you could be something of an expert on the topic of deductible vs. non-deductible college expenses.
One Deduction Fits All
The federal government sent a love note to beleaguered parents of every college student in the United States when it passed a law allowing a single, $4,000 deduction for families claiming one or more kids as dependents while they attend an accredited college or university. You don’t even have to itemize to claim this “above-the-line” tax break, but there are ground rules that include adjusted gross income limits, 529 plan withdrawals and parents filing individual returns. Also, even if you have a dozen kids in school, you only get one deduction.
Equipment and Supplies
Student Loan Interest
It’s the gift that keeps on giving: student loan payments dogging post-graduates for decades. According to the IRS and H&R Block, “You may be able to deduct up to $2,500 of interest payments on a qualified student loan,” if your modified adjusted gross income doesn’t exceed $70,000 or $140,000, for joint filers. The key, again, is your dependent’s status — if you take him as an exemption, you can probably deduct student loan interest. The Department of Education even recognizes some types of room and board as qualified expenses in certain situations, which is why it’s wise to keep receipts in case your return is challenged by the IRS.
Peruse the IRS website pages detailing college tax deductions and you’ll find predictable lists of items that can’t be used when filing returns. That said, everything’s up to interpretation. Expenses related to sports, games and hobbies are not allowed, but if a child majors in sports, computer game design or home economics, safety equipment not provided by the university, a tricked-out Mac or a knitting machine may be allowable. Verify with a tax expert just to be sure.
Obtain the Proper Tax Form