It’s Back-To-School Season: Do You Know Your Tax Benefits?

It’s back-to-school season. Parents across California probably had mixed feelings as they sent their kids off to college. They may have felt sad as they said goodbye. They may have felt nervous about their children being on their own. They may have felt proud knowing their children were becoming adults.

Even when they know it will all be worth it in the end, some parents may have even winced as they thought about how much that education would cost. For many parents, that school year is going to cost them around $31,000 or more. The good news is that the tax code currently provides some relief.

With good news often comes bad news. The bad news is that “complicated” and “constantly changing” are words that most accurately describe the federal tax code. The Internal Revenue Service’s Publication 970 covers the tax benefits for education.

The agency has not released updates pertaining to the 2015 tax year, but taxpayers can expect a few changes. One of those changes involves the 529 college savings plan. For the 2014 tax year, parents were able to deduct the contributions they made to the plan. They won’t be able to do the same on their 2015 tax returns. The silver lining is that, with one exception for payments that exceed expenses, the income and distributions won’t be taxable.

The American Opportunity Tax Credit (AOTC) is another break for parents under the tax code. The AOTC provides a credit of $2,500 to those who qualify. The credit covers education expenses and may be refundable under certain circumstances. The eligibility requirements depend upon the taxpayer’s income. Those who do not qualify may be eligible for a smaller, Lifetime Learning Credit.

If you are a parent saving money for their child’s education, paying for a current student’s education or paying interest on your own student loans, a professional can best explain the tax breaks available to you.

In preparation for filing your return and safeguarding your interests should the IRS audit your return, it is best if you keep any receipts, statements or other documents related to college expenses, not just the tax forms you receive in the mail.