As the 2020-21 school year begins, students of all ages are facing many changes to their school experiences due to the COVID-19 pandemic—whether transitioning to remote instruction or instituting mask-wearing within school buildings. These changes may exacerbate annual back-to-school stress, as parents and students navigate covering the many back-to-school expenses. To help, understand your opportunities to save with these seven tips:
1. Determine if costs are considered qualified education expenses. Students or their parents may be eligible for a tax credit or deduction in the amount of certain tuition, extracurricular and course-related supplies costs.
2. Apply the American Opportunity Tax Credit (AOTC) to post-secondary education expenses. Expenses related to colleges, universities and trade schools may be eligible for coverage.
3. Review the tuition and fees deduction. These deductions may be beneficial even if an individual is not eligible for the AOTC. The Internal Revenue Service provides a tool, Interactive Tax Assistant, to help taxpayers determine what is eligible.
4. Invest in a 529 Plan. Account withdrawals are tax-free for qualified education expenses, including room and board.
5. Use a dependent care Flex Spending Account for daycare expenses. Pre-tax earnings contributed to the account may be used to cover a range of childcare expenses for dependents under the age of 13.
6. For adult students, use the Lifetime Learning Credit to offset professional development. A tax credit may be available for learning opportunities that further one’s professional career.
7. Consult with a CFP® professional to review what other costs may qualify for tax benefits. A CFP® professional can help identify additional savings opportunities, including when managing student loan interest or a canceled student loan, or when taking early distributions from an individual retirement account for education expenses.
Feel free to reach out if you need any assistance creating or adapting a financial plan to incorporate your or your child’s education goals.