Now that fall semester is underway, it’s time to pay tuition. Parents, this tax tip could save your family an extra $1,500 this year. It’s very simple. If your student pays tuition with their own checkbook this year, they will be the one who has to claim the American Opportunity Credit. That credit is up to $2,500 per year; however, only 40% or $1,000 of it is what most college students get. The other $1,500 is lost, especially now the standard deduction has doubled to $12,000 for single filers. Here’s how to take advantage of the other $1,500.
Pay the tuition with your checkbook rather than your student’s checkbook. Then, claim the AOC credit on your taxes next year. As long as your taxable income after itemized or standard deductions is at least $15,000, ($40,000-$24,400 married filing joint standard deduction = $15,600 taxable income), then you’ll be able to use up the full $2,500 credit. You can then pay your student $1,000 the IRS would have given them, and get the other $1,500 that would have been lost if your student had claimed the credit on their own taxes.
If you have any questions, please reach out to me and I’ll help you.