An education tax credit or tax scholarship is a great way to pay tuition. This part of paying for college is often overlooked and not understood. Some of the confusion is related to the definition of qualified educational expenses. In most cases the qualified education expenses is tuition, fees and books. The qualified education expense is much broader when related to college saving plan reimbursement. Due the continual changes in the tax code proper planning is required. Plan ahead and match the various educational expenses to the proper credits and saving plans.
This leads us to another important part of classifying your college expenses and how you use them. You cannot reuse the same tuition dollars for multiple tax advantages. As an example you cannot reimburse yourself from your 529 plan and then reuse the same tuition expense to take a certain tax credit. Proper planning and timing of qualified education expenses is important.
For families who do not qualify for need based financial aid, the proper use of certain tax strategies and the college education savings plans can be a great way to minimize the out of pocket cost of education.
Creating a plan when using the tax credits has certain limitations. There are income limits based on how you file your taxes. Knowing that the tax year and school year do not match is also a very important factor in a family’s planning.
This educational tax credit video covers the following items:
- Kiddie Tax
- Self-Employment Advantages
- Education Opportunity Credit
- Impact on financial aid
Sometimes called a “Tax scholarship” proper use of an education tax credit can help both families who do not qualify for financial aid and families who do. If you need college financial aid help, please visit our College Affordability Services. We can help you maximize your college tuition dollars.
Disclaimer: We are not tax experts or a CPA firm. This page and video are only suggestions that need to be reviewed by your tax expert or CPA.