Help your clients plan for higher education expenses

In today's landscape of escalating college and higher education expenses, staying informed about the array of tax benefits is imperative for tax pros. Navigating the complexities of educational costs requires a comprehensive understanding of available tax incentives, as they can significantly alleviate the financial burden associated with pursuing advanced degrees.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Is it true that children cannot claim the education credit if their parents can claim them as dependents, even if the parents don't claim them?

A: No, that's incorrect. If the parents don't claim their child as a dependent, the child can claim the education credit. Essentially, if another taxpayer is eligible to claim the student as a dependent but chooses not to, only the student may claim the education credit [Reg. §1.25A-1(f)(1)].

Q: My client is taking five years to complete her undergraduate degree. Can she take the AOTC for two years, switch to the LLC for one year, and then take the AOTC for the remaining two years?

A: Yes, if the student hasn't finished the first four years of postsecondary education before the year they intend to claim the AOTC, they can claim it in any tax year of their choice. However, they can only claim it for four tax years.

Q: When the AOTC is optimized by making a portion of the scholarship taxable, who is taxed on the scholarship - the parent or the student?

A: The student is taxed on the scholarship, so the taxable amount is reported on the student’s tax return.

Q: If a person takes computer courses without leading to a certificate, degree, or other postsecondary credential, do they get no credit?

A: It depends. They may claim the lifetime learning credit, but not the AOTC, if they take courses from an eligible educational institution.