I wanted to write about Florida’s college tuition rates and the Bright Futures Scholarship program, which are both in the news again.
At issue: whether students spend more on tuition or their cell phones, and whether we can handle another tuition increase and a simultaneous decrease in Bright Futures, the lottery-funded merit awards. Regardless of the debate’s outcome: the hardest hit will be the forgotten middle class. Again.
But then I thought, why focus on the negative today – we can do that next week.
Instead I thought I’d spread a bit of good news to my hardest hit college-bound readers.
So, here goes. Did you know, for example, that the fiscal cliff deal extended the above-the-line deduction for most tuition expenses? The break, which had expired at the start of 2012, is back and good through 2013… and best of all it benefits middle class taxpayers (those with a modified AGI of $160,000 or less for joint filers.)
Also good – the same legislation extended the American Opportunity Tax Credit through tax year 2017. Formerly known as the Hope Credit, this benefits most tuition-paying students and parents. It’s a dollar-for-dollar tax credit on your first $2,000 in college expenses, then 25% of your next $2,000… plus up to 40% of it, or $1,000, is refundable, meaning you get it whether you owe taxes or not.
Finally, if your modified AGI is less than $65,00 per year (single filer) or $130,000 if filing jointly, and you have student loans, you might be able to deduct up to $2,500 a year on the interest.
One critical note/disclaimer: there may be restrictions on these deductions. Please check with a trusted tax adviser if you are unsure as to which ones you might be eligible for. Which also brings me to my next point:
Paying for college is a very costly (and complex) endeavor. Paying less than the sticker price — and sustaining your lifestyle without sacrificing your retirement, your cash flow or leveraging your children’s future(s) with onerous debt — is achievable, but it requires a multi-faceted strategy. One that incorporates need and merit-based tuition deductions, and leverages both the Financial Aid regulations AND yes, the tax code. Unfortunately, many of the loopholes available to middle class families in the Title IV Department of Education financial aid regulations can conflict with the IRS tax code. It is critical that your college funding strategy consider the cost-benefits of each. That’s why I like to start working with families well before their first child applies to college (in other words, 10th grade at the latest), so that certain taxable activity can be completed well before any financial aid disclosure requirements.