When it comes to filing taxes, claiming dependents can have a significant impact on your tax liability. This is particularly true when you have a dependent who is in college. However, it can be difficult to know whether or not you should claim your college-aged dependent on your tax return. This is where working with an accountant can be extremely valuable.
First and foremost, claiming a college-aged dependent on your tax return can result in significant tax savings. The main reason for this is the availability of education credits, which can reduce your tax liability by offsetting the cost of higher education expenses. However, these credits are not available to everyone, and there are different types of credits depending on the circumstances.
One of the most common education credits is the American Opportunity Tax Credit (AOTC). This credit is available to taxpayers who have paid for qualified education expenses for themselves, their spouse, or their dependents who are pursuing an undergraduate degree or other recognized educational credential. The AOTC can be worth up to $2,500 per eligible student, and it is partially refundable, meaning that even if you do not owe any taxes, you may still be able to receive a refund.
Another education credit that may be available is the Lifetime Learning Credit (LLC). This credit is available to taxpayers who have paid for qualified education expenses for themselves, their spouse, or their dependents who are enrolled in one or more courses at an eligible educational institution. The LLC can be worth up to $2,000 per tax return, but it is not refundable.
If you have a college-aged dependent, it is important to determine whether you or your dependent should claim the education credits. Generally, if you claim your dependent on your tax return, you are also eligible to claim the education credits on your tax return. However, if your dependent is able to claim the credits on their own tax return, they may be able to receive a greater benefit.
When it comes to determining whether or not to claim your college-aged dependent on your tax return, it is important to compare the tax liability between claiming and not claiming the dependent. In some cases, it may be more beneficial to not claim the dependent, particularly if the dependent has a significant amount of income or if they are able to claim the education credits on their own tax return.
We can help you understand the tax implications of claiming the dependent and can help you determine whether or not you or your dependent should claim the education credits. With the right guidance, you can ensure that you are taking advantage of all available tax benefits while also minimizing your tax liability. Contact us today so we can help minimize your tax liability.