College Tax Time: Unwrapping the Secrets to Bigger Refunds

• Tax Filing Preparation for College Students and Parents: Emphasizes the importance of careful preparation before filing taxes, particularly for college students and their parents, to maximize benefits and avoid complications.

• Understanding Dependency Status and Tax Credits: Highlights the significance of correctly identifying dependents and claiming education tax credits, such as the American Opportunity Credit and the Lifetime Learning Credit, to optimize tax savings.

• Ensuring Completeness of Tax Forms and Residency Clarification: Stresses the need for thoroughness in completing tax forms, including those related to multiple jobs or education expenses, and advises students on clarifying residency requirements for tuition purposes.

While tax experts say it's excellent for college students to start submitting their own forms, parents and students should double check everything carefully before anybody presses the "submit" button. There are several things that college students and their parents should keep in mind before filing their taxes.

Be Clear on Who's the Dependent

It's crucial to clarify who qualifies as a dependent, especially for students filing taxes for the first time. Failing to check the "dependent" box can inadvertently complicate matters, as they may then not be eligible to be claimed on their parents' tax returns. Even if a dependent is not claimed, they may still not qualify as independent taxpayers, cautions Tom O'Saben, director of tax content and government relations at the American Association of Tax Professionals.

Make Sure You Claim All Education Tax Credits

The education tax credit comes in two varieties. For the first four years of pursuing an undergraduate degree, the American Opportunity Credit is worth up to $2,500 each year (based on at least $4,000 spent on tuition, books, and fees).

The second credit is called a lifetime learning credit, and it is worth up to $2,000 (based on 20% of qualified education expenses) toward an undergraduate, graduate, or professional degree. A parent cannot claim both credits for the same dependent child on a tax return for the same year, but a student may claim it for themselves. If there are multiple dependents on the return, they may use one or both credits for each student, but not both at the same time.

Verify All Forms Are Completed

While the majority of tax-related paperwork always arrive in the mail, college students sometimes work numerous jobs during the year, so it's possible that certain tax forms must be printed from the campus site rather than being delivered. Therefore, before filing, ensure that your dependent student has verified that all tax forms have been completed for all jobs held and that they have contacted the institution to inquire about any missing tax forms.

Make Your State Residency Clear

According to O'Saben, students who want to claim in-state tuition at a college in a state other than their parents' home state and are covering at least half of their expenses may wish to inquire about residency requirements from the college's financial aid office.

When considering the whole financial picture, it may not always be the wisest course of action to declare your child as a dependant.

Get the Most Out of Your 529 Account

According to Pickering, qualifying disbursements from a 529 account are excluded from the child's income and are tax-free. Furthermore, for 529 accounts, room and board are also included in the list of eligible withdrawals, even if the tax credit computations only take into account eligible tuition, fees, and books.