Summary: College students and their families are eligible for a variety of tax credits, financial aid, and benefits that could set them up for success well beyond school. These include FASFA, education tax credits, dependent status, and military benefits. Work with a qualified tax planner and ensure you don’t miss any tax benefits during your child’s college years.
If you have a child attending college this fall, you could be newly eligible for tax advantages that set you and your student up for success. Whether you need education-related tax credits or tips to maximize your student’s financial aid eligibility, Neely’s Accounting Services can help both students and families ace this financial test.
What is The FAFSA and Why is It Important?
You’ve probably heard a lot about the FASFA, or Free Application for Federal Student Aid. This is what colleges and universities use to determine if a student qualifies for federal financial aid or any of the school’s scholarships and aid programs.
The US Department of Education rolled out “The Better FASFA” for the 2024-2025 school year. According to the DoE website, “the Better FAFSA is simplified, redesigned, and streamlined. It is faster and easier to fill out, with most students and families completing it in less than 15 minutes.” In addition, it aims to:
- Ensure 665,00 more students receive Pell Grants.
- Provide more than 1.7 million more students the maximum Pell Grant.
Families must fill out the FAFSA each year, but it’s the first year that really sets the foundation for a student’s financial aid package. Here are a few tips to maximize your eligibility for financial aid:
- Even if you think your family won’t qualify, file a FAFSA. “In reality, most families do qualify for some financial aid, and you’ll be eligible for school-specific, need- and merit-based scholarships and grants as well,” said our Roanoke tax expert. An added bonus: you’ll be prepared in the event your financial situation unexpectedly changes before the start of the academic year.
- Submit your FAFSA as soon as possible after it’s available Oct. 1 to give your student the best shot at federal aid and grant programs that are award funds on a first-come, first-served basis.
- Keep taxable income as low as possible the first year you file: Do this without doing the family financial harm, of course. Again, our experts weigh in, “small, thoughtful tweaks can make a difference, such as delaying the sale of stocks or bonds, avoiding early withdrawals from retirement savings and asking employers to defer a bonus to another tax year,” they advise.
The U.S. Department of Education has several useful resources for understanding and filling out the FASFA:
Is Your Student Still a Dependent?
Parents can claim a full-time college student as a dependent until age 24 if they are providing more than half of the student’s financial needs. Most college students fall into this category.
“Families should figure out whether their student will be considered a dependent during college,” said our experts. “This helps clarify what credits and benefits each party is eligible for.”
If a parent does claim a student as a dependent, the student likewise will need to answer “yes” when asked on tax documents if someone else can claim them as a dependent.
What Education-Related Tax Credits Am I Eligible For?
Several federal tax credits are available to help offset the cost of education. Pick the best one that fits your circumstances because they cannot be used in combination.
- The American Opportunity Credit: Qualifying students or their parents may claim up to $2,500 of college expenses — including tuition, fees, books and other requirements — for the first four years of schooling while working toward a degree or certificate.
- The Lifetime Learning Credit: Qualifying students or their parents may claim up $2,000 in education expenses for an unlimited number of years. This would be helpful to a non-degree-seeking student or a graduate student.
- Student Loan Interest Deduction: After graduation, qualified students or their parents can deduct the interest paid on student loans in the past year up to $2,500. The lender will provide the required interest statement each January.
Are There Special Education Benefits for Military Students and Veterans?
Yes, there are some education benefits for military student and veterans. “Military students or students using a military benefit to pay for schooling should understand that their tax planning will look a little different,” our experts said.
- For students who received ROTC stipends for education and living expenses, these payments are not taxable and do not need to be included on your federal tax return.
- Cadets at the federal service academies, however, are considered on “active duty” while at school, so any payments made generally are taxable and should be reported as income on your federal return.
- Funds received from Veterans Affairs for education, training, or subsistence are not taxable.
Where Can I Find Tax Planning Help in Roanoke, VA?
Neely’s Accounting Services can offer some time-tested lessons in tax planning. We’ve supported Roanoke-area individuals and businesses since 2007 with our big-city services and hometown feel.
Don’t let another academic year slip by without implementing education-related tax planning that will serve you for the next four years and beyond. Contact us today and let us set you up for tax success during your student’s college years.