29 Dec Costs of College Are High – Are you claiming everything you’re entitled?
By Mark Parker
As the costs to attend college have soared in recent years, it is very important that taxpayers take advantage of all the credits and deductions currently allowed. There are two popular credits available (credits generally being better than a deduction), the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LTL). The AOC is a larger credit (up to $2,500) but is only for four years, while the LTL has a maximum credit of $2,000 but it can be used for an unlimited number of years.
In addition to these credits there is a deduction for student loan interest, tax benefits for starting a College 529 savings plan (maximum credit of $1,000 for Indiana’s plan), an Education Savings Account, and a Tuition and Fees deduction.
With so many different credits and deductions available now, it is important that the taxpayer knows what the best strategy for his/her particular situation is going to be. Along with the various credits and deductions there are phase outs for higher income taxpayers that may require planning. Sometimes the taxpayer can have the dependent claim the credits if it is advantageous to the family as a whole. Scholarships, course related books and fees, and withdrawals from 529 plans all need to be considered and coordinated to maximize the benefits. The timing of when the tuition and fees are paid can also play a part in whether you are utilizing the best tax strategy.
If you are planning for college or currently have dependents in college, it may be best to seek some help in understanding and maximizing the current tax laws relating to this topic. Please feel free to give our office a call.