What, you think I’m on vacation?
Yes, the tax deadline has passed. But we’re still available, and handling post-deadline matters for West Michigan clients.
But moving along to today’s subject: figuring out how to pay for college tuition. Things are different from the days when I considered college…
I’m talking to West Michigan parents left and right who are scrambling to figure out ways to manage skyrocketing tuition costs. Well, I’m happy to tell you that the tax code is here to help.
College Is Expensive But West Michigan Families Can Save Big Through These Tax Breaks
“The University brings out all abilities, including incapability.” -Anton Chekhov
College is expensive.
Let’s put that fact out on the table because we all know it’s true, and most of us have been affected by this reality in some way, shape or form.
Side note: College is even more expensive if you’re trying to cheat the system so your kid gets into a prestigious school. We’re all seeing how that turns out … right before our eyes.
But did you know there are various tax breaks which can help chip away at the cost of your son’s or daughter’s (or your own!) college tuition?
Note these steps if you’re interested in saving on tuition costs with some help from Uncle Sam.
American Opportunity Tax Credit (AOTC)
This is the first of two educational tax credits I’d like to explore. The AOTC provides up to $2,500 for eligible students, and covers education expenses spent during the student’s first four years of college-level education.
In addition, the AOTC is refundable. In other words, if the credit reduces your tax liability to zero, you receive a refund for the amount left over. Pretty sweet, right? If you wonder what students are eligible, this page highlighting the AOTC will give you a better idea.
Lifetime Learning Credit (LLC)
The second tax credit I’d like to discuss offers a max annual amount of $2,000 per tax return. You might have guessed this, but the LLC is for students who complete more than four years of college, furthering their education in any given field.
But as opposed to the AOTC, the LLC is not refundable. If you’re left with excess credit after your tax liability lands at zero, you will not be refunded the extra cash. If you’d like more info on the LLC, there is a similar page on the IRS website.
Student Loan Interest Deduction (SLID)
Moving on to deductions, there are again two I’d like to cover. First, SLID offers an opportunity to claim up to $2,500 of interest paid on student loans during the year.
This should alleviate some student loan worry for the 69% of college students who relied on student loans in 2018. With an average debt of $28k after graduation, I hope any such student would take advantage of SLID in the future.
Tuition and Fees Deduction (TFD)
TFD provides up to $4,000 for … you guessed it, tuition and fees. But there is a caveat to where the deduction currently stands. Congress has yet to “re-approve” this tax deduction, known as an extender, and therefore has the TFD on hold for the time being. It’s important you know about the deduction of course, but something to look out for is when Congress actually approves it once more.
If you don’t have a 529 account, which lets you accrue funds toward your child’s college tuition tax-free, I strongly recommend you look into it (if you have children who might go to college in the future). Every little bit of savings will help, and anything you can contribute on a month-to-month basis is a true gift you’ll give your son or daughter someday.
Once your young scholar ships off to the university, 529 account funds can be spent (again, tax-free) on things like tuition, room and board, books, fees, etc.
Support Your Alma Mater
This is a fun one. If you have extra cash and want to support students attending your alma mater, you can start a scholarship fund to help students pay for school.
The donations you make to said (potential) scholarship fund will be tax deductible, and the university’s finance department should walk you through the IRS guidelines to set up the scholarship in the correct manner.
So there you have it. Although college costs may seem daunting, there are ways to earn a little money back on your important investment. If you have any other questions about how these codes and deductions work, please give me a call.
I’d love to cheer on your scholars, while helping you save dollars. 🙂
Forrest Tax & Accounting Services