Tax deductions?

Paying for College
1

<p>Hi,</p>

<p>Ok hubsy and I were in a "discussion" this AM about whether to use funds in son's name from Grampy's gift way those 18 years ago, or whether to use our savings for upcoming freshman tuition etc. My argument was that our funds would provide for tax deduction, whereas his would not, and that his should be used for other things that do not carry a tax deduction.</p>

<p>Perhaps I should call Click and Clack, the Tappet Bros. on this one......but perhaps you folks can help out.</p>

<p>What are the tax deductions available for college expenses? Please distinguish between govt. loans etc. and one's own savings. Please note whether tuition, room and board, books, body piercing s and such(please say no to the last =) ..... are tax deductible.</p>

<p>Thanks!</p>

2

<p>Firsttimemom: I’m not sure that this answers your question, but here goes:</p>

<p>Your family’s EFC is a sum of four different things. It is a percentage of 1) parent’s income, 2) your income, 3) parent’s assets, and 4) your assets. As to parent’s and your income, this is the adjusted gross income (AGI) found on line 36 of a 1040 form, line 21 of a 1040A form, or line 4 of a 1040EZ form.</p>

<p>I am now just talking about #1 above (parent’s income). When calculating EFC, FAFSA does not take into account deductions like your mortgage interest, property taxes, etc. You talk about your son and hubsy, so I am assuming that there are three people in your household. FAFSA takes your AGI and then gives you a standard deduction of $17270 (for 2005-2006). This is what FAFSA calculates that a family of 3 needs to house, clothe and feed themselves for one year. (This is called the income protection allowance-go to Google, type in FAFSA and income protection allowance and check it out). The bottom line is what deductions you have after your AGI on your tax form are meaningless (except maybe medical). For a family of 3, you get a standard deduction of $17270. If this amount is a fantasy, you could write to the financial aid office to explain.</p>

<p>As to parent’s assets (#3 above), when you file FAFSA, you will be asked questions about you and hubsy’s assets. When the EFC is calculated, FAFSA will add up those assets and depending upon the older spouse’s age will give you a standard deduction. It’s called the asset protection allowance. (Check it out on Google). Whatever is left after the deduction could be assessed up to 5.6%. </p>

<p>As to #4 above, your son’s assets could be assessed up to 35% and he will have no asset protection allowance.</p>

<p>What you and husband, and your son have in the way of assets is determined by their value on the date you file FAFSA. Since your son’s assets could be assessed at a much higher rate, if for example, you and hubsy were planning to buy your son a car or new computer, I’d buy it using your son’s assets before you file FAFSA. </p>

<p>I hope this helps. It’s kinda of late to be filing FAFSA. I’m guess your son is not a senior.</p>

3

<p>Sorry firsttimemom, when I replied, in the second paragraph, #4 should be your son's assets, not your assets.</p>

4

<p>I read your question differently, and hope this answers it:</p>

<p>There are three types of eduction help on your 1040: Hope Credit, Lifetime Learning Credit, and Tuition deduction.</p>

<p>The Hope credit is available inthe first two years of college, on the return of the person claiming the student. It is 100% of the first $1000, and 50% of the second $1000, for a max of $1500 per eligible student. This fazes out on incomes of between approximately $85,000 and $105,000. (MFJ)</p>

<p>The Lifetime learning credit is for any year of higher education and is 20% for a max of $2000 per return. Same income levels.</p>

<p>If your income is above those levels, you can take a tuition deduction of a maximum of $4000 in incomes of less than $130,000 and $2000 on incomes of less than $160,000 (MFJ).</p>

<p>These are all for Qualified tuition and fees only. No books, room and board, or piercings. It doesn't matter whether you use the parent's funds or the student's. Tuition paid with borrowed funds also qualify. You cannot use tuition paid with non taxable funds such as grants or 529 plans.</p>

5

<p>Thanks, folks. Actually I was not referring to FAFSA but plain ol' taxes. I think Boysmom answered my question....</p>

<p>Thanks again!</p>

6

<p>For some families in the upper echelons of taxes who cannot take the deductons and credits, it pays to have the student pay the tuition in the amounts necessary to get the tax lift, and file his own return. Which he may have to do anyways if he works. There are a number of ways you can do this, and you will have to fool around to decide what is optimum.</p>

7

<p>Jamimom, thanks - but then we would not be able to claim him as a dependant, no?</p>

8

<p>It depends,Firsttimemom,#7. Once kid declares financial independence there may be no going back. Your information is incomplete to make a good, positive statement either way. A lot depends on your assets, income level, son's assets and income, and what the assets are in (bonds, EE, passbook savings, UGMA, Coverdells, stocks, MF, 529's, risk tolerance and time horizons) All have certain tax ramifications by themselves and then the complications come in when you try to minimize later taxation and dependency requirements. </p>

<p>Suggest that you get a tax program and run your personal and son's personal situation different ways. Use the tax program to guesstimate next year's problem. This is how we did it. I have taken a professional tax course and licensed in securities. </p>

<p>If you find using a tax program trying and confusing (it is), I however feel that the programs do a better job than going to a live person. Millions and millions of tax programs are sold every year. You may however want to go to a professional who is knowledgible AND competent, even just to check the competency of the tax program. </p>

<p>Good for you for even investigating the problem AND realizing that how you approach this problem will translate into $$.</p>

<p>Hope you read Roger Dooley's essay "Financial Aid Conundrum: The Dooley Uncertainty Principle of College Costs" <a href="http://www.collegeconfidential.com/financial_aid/index.htm%5B/url%5D"&gt;http://www.collegeconfidential.com/financial_aid/index.htm&lt;/a&gt;&lt;/p>

9

<p>firsttimemom: you are correct. Only the person who declares the student on their return can take the credits or deduction. If the parents make too much, the student could take it but must declare themselves. The problem being that most students, once they claim themselves, have no tax liability even before the credits.</p>

10

<p>If the student declares himself, he or she will very likely NOT be eligible for the parents' medical insurance! Most major medical insurance companies will cover kids until they are 23 or 24 if they are full time students, but ONLY if the kid is a dependent - Blue Cross sent us a form asking if our child not only COULD BE deducted on our tax form (that is, we supplied over 1/2 support) but was also ACTUALLY deducted.</p>

11

<p>That is very true. Check with insurance first. Ours only requires that we be ABLE to deduct him, not that we actually do so. We get a form every year asking specific questions to keep them covered.</p>