Fall is upon us and the start of a new school year is imminent. And with school comes the added expenses for clothing, supplies; and for college students, tuition, room and board and related expenses. Fortunately, there are some ways in the tax code to save money on expenses for the 2016-2017 school year. Here are some of the most important:
Deduct Before and After School Care
Do you have a child that is under the age of 13? Does that child receive before and/or after school care? If so, you may be able to receive a credit for this expense (subject to limitations) when you file your taxes next year. Parents and caregivers may be eligible to claim the Child and Dependent Care tax credit if they meet all of the IRS qualifications.
College Moving Expenses Cannot be Deducted
Many parents believe/hope that the cost of moving their child to college is tax deductible. Unfortunately, it is not. Moving for college is not the same as moving for work, which means that the IRS does not consider the cost of moving to college “job-related.” Keep in mind, however, that the cost associated with moving from college to a first job may qualify for the moving expense deduction, if you meet all of the other requirements.
529 Plan
Earnings are not Federally Taxable If you have a 529 college savings plan, the earnings you have accrued while putting money into the plan are not taxable, as long as they are used for qualified education-related expenses; such as tuition, books, computers, etc. This makes 529 plans among the best vehicles to help finance a college education. If you have not set up a plan yet for your children, it is best to get started sooner rather than later.
Student Loan Interest may be Deductible
The interest paid on student loans can be deducted up to $2500 in a given tax year. The good news is this is an “above the line” deduction, meaning you can take it regardless of whether or not you itemize your deductions. As with any other deduction, certain restrictions apply. For example, the loan must be from a qualified source (hint: borrowing from your parents does not fall into this category), funds must be used to attend a qualified educational institution, your filing status cannot be married filing separately, and the deduction is subject to certain income limitations.
Take Advantage of the American Opportunity Credit or Lifetime Learning Credit
The American Opportunity Tax Credit (AOTC) can provide up to $2,500 in tax credits if you are eligible. This credit is available on the first four years of post-secondary education if you attend a qualified educational institution. As much as 40% of the credit is also refundable, meaning you may be able to receive up to $1,000 back on eligible expenses, even if you paid no income taxes during the year. If you are in graduate school and/or have already claimed four years of the AOTC, you may be eligible for the Lifetime Learning Credit(LLC), which provides a credit of up to $2000 per tax return. Saving money on your taxes is important not only during filing season, but year-round. Employing effective tax-reduction strategies throughout the year makes things much easier at tax time. To learn more about back-to-school tax saving strategies and other ways to reduce your tax exposure, speak to your local accounting firm.