As a parent you have spent countless hours preparing your child for adulthood. You have thumbed through your share of board books, mastered the art of singing The ABC Song and Twinkle, Twinkle Little Star on a whim, and have racked up enough mileage driving back and forth from piano lessons, soccer games and summer camps to make a space shuttle cringe. But now it’s here. After nearly 18 years, your son or daughter has become a college student.
Many parents describe this milestone moment as bittersweet; others say they are caught off guard by feelings of anxiety and sadness. And while all parents are proud of their child’s accomplishment, it’s hard not to feel a little buyer’s remorse when you see the statement for the first semester in the mail – especially if you offered to pick up the tab.
College is not cheap, and according to the National Center for Educational Statistics (NCES), it’s only getting more costly. The NCES reported that the prices for an undergraduate to attend college at a public institution rose 40 percent between the 2001-02 and 2011-12 academic years; a student who chose to attend a private nonprofit institution saw a 28 percent increase over the same period. The report found that an average undergraduate student paid $14,300 annually for their tuition, room and board at a public institution while a student attending a private for-profit school paid $23,300 per year. And those numbers don’t include the price of books, meals, transportation, insurance, and extracurricular activities … to name a few.
Consider A Tax Credit
Don’t abandon ship just yet. Here are three tips to help give your bank account a break.
- Utilize the American Opportunity Tax Credit or the Lifetime Learning Credit. These two tax credits could help take the edge off of your initial statement shock. If you qualify for the American Opportunity Tax Credit, you could save up to $2,500 annually for an eligible student during their first four years of school. Because 40 percent of this credit is refundable, you may be able to get up to $1,000 of the credit as a refund. The Lifetime Learning Credit, on the other hand, gives you the opportunity to claim up to $2,000 on your federal tax return and has no limit on the number of years it can be claimed. If you decide to take a credit, keep in mind that the IRS will only let you claim only one type of education tax credit per student.
- Claim your qualified education expenses. Be sure to keep track of the expenses you paid toward tuition and student activity fees that were paid to complete enrollment. According to the IRS, you can make a claim if you paid for any of these expenses with cash, check, a credit or debit card or with money secured from a loan. If you will be taking the American Opportunity Tax Credit, expenses for books, supplies and course equipment are also considered a qualified education expense.
- Don’t forget your 1098-T. This form, in addition to your receipts, is critical to claim a tax credit. Most schools will send this to you in the mail. Don’t be surprised if the amount on your form doesn’t match your numbers. The 1098-T doesn’t include items such as textbooks.
College doesn’t have to break the bank. To learn more about your college saving options, email Rea & Associates. Our team of tax professionals can guide you through the tax credit process and other college savings options.
Author: Brian Kempf, CPA (Millersburg)
Saving For College? Use Sallie Mae’s New Mobile App
What You Should Know Before Dipping Into Your 401(k)
Have You Determined A Beneficiary For Your Retirement Plan?