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Going to College and Taxes

To help deal with the rising cost of college tuition and the growing burden of student loan debt, taxpayers mostly use these credits and deductions: American Opportunity Credit, Lifetime Learning Credit, and Student Loan Interest Deduction. Simply plugging the numbers from the 1098-T (Tuition Statement) and/or 1098-E (Student Loan Interest Statement) and answering the questions prompted by software suffices for most people as the software will determine which credit or deduction will bring maximum tax benefit. Here’s some supplemental FAQ that software may not always catch:

What education expenses are qualified?

For most credits being claimed, the qualified expenses are generally: Tuition, Books and Course-related Fees. But there are other education expenses that are qualified for some credits, and not for others. See the next two Q and A for some examples.

Does Room and Board qualify as an education expense?

For the American Opportunity Credit and Lifetime Learning Credit, No.

For the Student Loan Interest Deduction, Yes. This means if you used your all or part of your student loans to pay for the dorm or rent, then you can deduct the interest.

I bought a computer and I paid for internet to be able to do coursework. Are those expenses qualified education expenses?

No, unless you are utilizing a Coverdell Education Savings Account (ESA) or Qualified Tuition Program (529 plans). These are savings accounts in which people (usually parents) contribute money which then goes into certain investments. The interest earned from these accounts are tax-free if it is eventually used to pay for education expenses.

I took out a direct PLUS loan for my child (i.e. parent loan). Can I claim the student loan interest for that?

Yes, if you claimed him or her as your dependent at the time you took out the loan (or could have claimed him or her under certain circumstances).

If I paid for my tuition and education expenses with student loans entirely, can I still claim the American Opportunity Credit and Lifetime Learning Credit?

Yes. Only in the year you paid for those expenses. (Not in the year you paid back the student loans).

My employer has been paying for some classes that I’ve taken through them (i.e. Employer-Provided Educational Assistance). What impact does this have on my tax return?

None, if the cost of education benefits is not over $5,250. If it’s more than that, the excess most likely will be treated as part of your wages (Form W-2, box 1).

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Custody, Kids and Taxes

If your child or children lived with you for most of the year and you provided most of their support (financially), you can claim him/her/them on your tax return. Claiming them (as well meeting other requirements) entitles you to these tax benefits: Child Tax Credit or Credit for Other Dependents, the Additional Child Tax Credit, Earned Income Credit, Head of Household Filing Status, and/or the Credit for the Child and Dependent Care Expenses. Things can get complicated, however, when there are multiple people trying to claim the same kid. It can be between two divorced parents, a parent and grandparent, etc. At that point, tiebreaker rules apply.

Doesn’t the custody agreement determine who gets to claim the child on their tax return?

Not necessarily. The agreement determines who gets the child on which dates or days (future). But the custodial parent is whomever the child lived with the greater number of nights during the year (past). And the custodial parent can only claim the benefits mentioned above (and not the non-custodial parent).

Can the non-custodial parent still claim the child instead?

Only if the custodial parent signs IRS Form 8332, release of claim and exemption. However, the non-custodial parent can only claim the Child Tax Credit or Credit for Other Dependents, and/or the Additional Child Tax Credit. All the other credits still belong to the custodial parent.

What documents do I need for proof of eligibility?

  • Birth Certificate of Child or Adoption Records
  • School Records and/or Medical Records showing:
    • address in which you both lived for more than ½ a year
    • the child’s name
    • date for the tax year
  • Divorce Decree (if applicable)
  • Household bills such as rent receipts, grocery bills and utility bills (if you are claiming Head of Household)

If you are going to a tax preparer, make copies of the documents above.

My child mainly lived with my relatives, but I still sent them money to support him/her. Can I still claim him/her?

As a qualifying child? No, since the child didn’t live with you (or your spouse) for more than half of the year.
As a qualifying relative? Possibly, if he/she will not be claimed as the qualifying child of the relative, you provided more than half of the child’s support (financially), and the child did not make more than $4,150 during the year. As a caveat, I’d discuss with the relatives on this issue before filing.

My child and I live with my mother, but my mother supports both of us and pays most of the household expenses. Can she claim my child as a qualifying child?

Yes, if your mother has a higher adjusted gross income than you (i.e. makes more money).