Covering the cost of college

By Erica Stark, Licensed Financial Advisor, Tax Specialist, Founder of TAPP Financial

Saving for their children’s college education is a priority for many parents, so I thought this month would be a good time to discuss maximizing tax benefits once a child gets to college. As the cost of higher education continues to rise, families often seek ways to offset the increased expenses.

Two shrewd options to alleviate your financial burden are claiming your child as a dependent and taking advantage of educational tax credits.

To meet the criteria for dependency status, factors include:

• Age and Student Status—Generally, the student must be under 24 years old and enrolled as a full-time student for at least five months of the tax year.

• Financial Support—The parent or guardian must provide more than half of the student’s financial support, including tuition, housing and other expenses.

• Residency—The student must live with the parent or guardian for more than half of the year, excluding temporary absences such as attending college.

• Income—The student’s income must be below a certain threshold to qualify as a dependent. However, there are exceptions and guidelines provided by the IRS for determining support provided by the student.

In addition to claiming a college student as a dependent, families can also benefit from educational tax credits, which provide direct reductions in tax liability based on qualified education expenses.

Two primary educational tax credits available to eligible taxpayers are the American Opportunity Tax Credit, up to $2,500 per eligible student for the first four years of post-secondary education, and the Lifetime Learning Credit of up to $2,000 per tax return for qualified education expenses incurred by eligible students.

If you have any questions about these tax benefits, feel free to give me a call.

TAPP Financial is located at 7003 Pearl Road, Suite 17B, in Middleburg Heights. Call 440-885-3133or visit Tapp-Financial.com.