Tax Deductions for Parents of College Students

The increasing cost of college has given rise to a huge projection in college debt. Plenty of parents, students, and guardians want a pause from these expenses.

Luckily, the US government provides a variety of tax breaks for college students or parents through tax credits, tuition, and fees deduction, and tax-free savings account.

Tax deductions work to reduce your taxable income. With this income, you fall into the 22% income tax bracket, saving you $220 in taxes, all things equal.

What is a Tax Deduction vs. a Tax Credit?

Tax credits work to reduce your tax liability dollar-for-dollar. If you have $50,000 in modified adjusted gross income, you fall in the 22% tax bracket and pay $6,790 in federal income taxes.

The tax code awards this behavior by offering you the ability to deduct your contributions from your taxable income if you make them into a traditional IRA.

Retirement Account Contributions  (IRA)

If you trade stocks in a taxable account, you hopefully only make gains. But, we live in a realistic world. Not all of our investments will turn out to be winners.

Capital Gain Losses

This credit can be worth up to $2,500 per year for four years of schooling after high school if enrolled at least half-time and working towards a degree.

American Opportunity Tax Credit

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