Today we will be talking about the trying times when your children go off to college. Not only are your kids gaining some independence in their living and education life, they gain independence with the IRS. Going off to college is one of those milestones that needs just a bit of planning when it comes to taxes.
Just because they may be able to get a refund on their part-time job, does not mean they always should or at least as a full taxpayer.
It is usually and most often appropriate for the parents to continue claiming the child until the year before they turn age 24.
There are huge credits at stake. Using those credits on the child’s return or not using them at all, means you’re potentially leaving thousands of dollars on the table. The American Opportunity Credit is the 4 year credit for full-time students in a degree program. The max credit is $2,500.00 and can be taken in the first four years the child is a student.
You see, I said maximum credit is $2,500.00, meaning it is a calculation based on income and tax liability. So usually it is best to claim student on parent’s return with the larger income and tax liability.
We suggest talking to your children and make sure they are not filing a return without you knowing. Kids talk and a small refund sounds like they hit the lottery. But understand it is not free money it is YOUR money. We have seen lots of horror stories where children file to get their small refund and then parents owe the IRS and it then requires the need to pay us to fix those returns because they did not have this very vital conversation.
Your children can file a return and should to claim the refund they are due, meaning they will usually get back any tax they over paid through their paycheck. They MUST give away their exemption though, I will repeat that because it is very important, they MUST give away their exemption. This means they do not claim themselves. They are a taxpayer which is claimed on another return, your return, but is filing a return to claim a refund.
Hopefully this gives you a better picture of how important it is to talk turkey, well Taxes when they are about to head off to college. These credits are important to you and your children, considering the skyrocketing costs of college.
Thanks and please if you have any further questions my door is always open.
Your situations may be different, please consult with a professional on your own unique tax situation.