Tax Strategies to Consider for Families With College Students
College Costs Rising
Families with college-bound students are likely thinking about paying for tuition, room and board, and other expenses as the school year approaches. Even though the fall semester is just around the corner, there are tax moves families can make to mitigate some of the cost.
The cost of a college education is on the rise and is expected to average $9,410 per year for an in-state four-year public university and $32,410 for a private one. From tax write-offs to using a 529 plan, here are ways to maximize savings when it comes to paying for a college education.
Tax Breaks to Consider
Families with a 529 college plan need to use the money for qualified college expenses in order to get the tax benefit. But before they start spending, they should see what tax breaks the government has to offer.
Take the American Opportunity Tax Credit. Individuals can write off 100% of the first $2,000 in expenses and 25% of an additional $2,000. To avoid what the IRS considers double dipping, families often pay the $4,000 in expenses and use the 529 for any college expenses after that. This tax credit is available for four years. The Lifetime Learning Credit enables students to write off up to $2,000 in college expenses per year. Tax filers cannot claim both tax credits in the same year.
The Takeaway
With the fall semester weeks away, many families are beginning to pay tuition. By assessing their tax situation and considering some money-saving tactics, they may be able to reduce the cost of college—an A+ move in anyone’s book. As with any tax strategy, it can be helpful to contact a professional tax advisor for more information.
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