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Dependent/College Cost Deduction Question
Old 09-10-2010, 08:54 PM   #1
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Dependent/College Cost Deduction Question

Anyone know how to approach taxes when one has a dependent in college and then said person (we hope) gets a job for the rest of the year. Students usually graduate in June, in previous years the expenses and tax deduction would usually be taken by the parent who has paid for these. But presuming our son gets a job, I would assume he would not be a dependent for the year and thus all the tax deductions for dependent status and college expenses would be lost to the parents and not useful to the now working son. Is this about right? Is there a better way to approach this? Pay costs in advance?

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Old 09-10-2010, 09:21 PM   #2
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Timely post. My oldest is also a college senior and I haven't researched this issue yet.

Not intending to hijack the thread, but these are some of the important variables for me:
  • I can pay spring tuition in December or I can defer the majority of spring tuition payments until after January 1. (State U has an installment plan with minimal carrying costs.) If she's eligible to be my dependent in 2011, I may be better off waiting so I can get education tax credits in both 2010 and 2011.
  • The last bit of DD's 529 money could be withdrawn either this year or next. Or I can pay with other cash and keep the money in the 529 account for DD #2.
  • Housing costs are more complicated, since she lives off-campus and paying State U for a semester's room & board in a dorm isn't an option. I suppose I could pre-pay several months of 529-eligible rent expenses in December.
  • The Obamacare "stay on the parents health insurance until 26" provisions will kick in on schedule January, just in time for my employer's open enrollment in February. No worries about lack of insurance coverage beginning in June.

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Old 09-10-2010, 09:49 PM   #3
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We maintained the deductions when our oldest graduated because she moved back home so we provided room and board that accounted for most of her support. This continued through grad school even though she paid her own school bills. I guess you could continue to pay some living expenses for the dependent which might be minimal to make your contribution (along with education expenses) more than half.

We continued claiming our dependent for one more year until she finished grad school and started making more money. Since she was still at home we felt entitled to a deduction so we ran turbotax with and without her as a dependent and the combined tax bill was less with her claiming herself and we shared the savings to offset the additional taxes on our return.

As for timing payment of the bills, it seemed like the 1098T provided by the school only considered when the bill was issued, not when it was actually paid.
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Old 09-10-2010, 10:23 PM   #4
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I just answered the questions on TurboTax when our kids were in college.

I remember we did claim DS the year he graduated because it made more of a difference for us than it did for him had he claimed himself.
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Old 09-10-2010, 10:51 PM   #5
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Originally Posted by jazz4cash View Post
As for timing payment of the bills, it seemed like the 1098T provided by the school only considered when the bill was issued, not when it was actually paid.
Right, you can use your actual payments instead of what's on the 1098T. I used to make tuition payments in January because having it in December would go over the limit for the credit.

Here's Pub 970 Tax Benefits for Education.

Your issue seems to be if your son will be your dependent for the year. A lot of that will come from if you are supporting him. From Pub 501, the support test is -

The child must not have provided more than half of his or her own support for the year.
As for if he is a full time student for the year, the requirement is that -

Full-time student. A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Student defined. To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year:
  1. A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or
  2. A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency.

The 5 calendar months do not have to be consecutive.
So if he attends for 1 day in January, all of Feb, Mar, April and one day May, then he can be considered a full time student for the year and therefore your dependent....unless he provides more than half of his own support.

One of our sons graduated in May and moved home and paid us to live here. We kept him as a dependent for the year and took the exemption and the education credit. The other son made it easy. He graduated in Dec. so he was our dependent for the year. We made all payments before he graduated. As of Jan. he was no longer our dependent.
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