The back-to-school season brings a lot of excitement for the kids but financial stress for the parents. From buying school supplies and clothes to paying tuition and activity fees, the expenses are never-ending. However, developing a smart financial plan during this season, perhaps with the help of a professional in Colorado, can help parents save money.
Did you know that some back-to-school expenses might qualify for tax deductions or credits? Qualifying expenses may include tuition, after-school activities, some school supplies, etc. Colorado also offers certain state-specific incentives for education-related expenses. However, understanding their eligibility requirements is important.
Colorado’s tax laws are challenging to grasp, especially for parents who are already busy handling other aspects of raising children. Missing out on available tax credits and deductions means you pay more than you need to. By working with tax professionals in Denver, CO, you can take full advantage of tax breaks.
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Back-to-school tax tips for parents
1. Save receipts for education expenses.
It is important to save your receipts from education-related expenses to get the maximum tax benefits. Deductible items may include school supplies, textbooks, and even technology like laptops or tablets. You can create a physical or digital folder to store these receipts.
2. Explore education tax credits.
Education tax credits, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), can offer a huge financial relief. The AOTC offers up to $2,500 per year for eligible students during their first four years of higher education. On the other hand, the LLC provides up to $2,000 per tax return for qualified education expenses.
3. Deduct tuition and fees.
Parents paying tuition for their child’s education may be able to deduct tuition and fees. Eligible expenses include those related to colleges, universities, vocational schools, and other post-secondary institutions. Make sure to fill out Form 8917 and provide proper documentation.
4. Leverage 529 plans.
A 529 savings plan allows investments to grow tax-free. When you withdraw money from these accounts, they are tax-free, but only when you use them for qualified education costs such as tuition, books, and room and board. The key is to start the plan early in the process.
5. Consider child care tax benefits.
For parents who are dealing with school and daycare costs, the Child and Dependent Care Credit offers savings. Eligible expenses include payments to babysitters, daycare centers, or tutors. This credit is especially valuable for working parents.
6. Deduct student loan interest.
Parents of students in higher education can benefit from the student loan interest deduction. This allows for a deduction of up to $2,500 on interest paid toward qualified student loans. However, the loan must be used for qualified educational expenses.
7. Keep an eye on state tax benefits.
In addition to federal tax incentives, many states, including Colorado, offer specific deductions or credits for education expenses. These benefits may include tax breaks for contributions to 529 plans or deductions for certain school-related costs. Make sure to research Colorado’s specific deductions available and talk to a CPA to learn about your options.
8. Plan for end-of-the-year tax preparation.
To avoid tax-related stress at the year of the year, prepare for it early. Organize all your receipts and tax documents related to educational expenses. It is recommended to hire a CPA who knows the state’s tax laws thoroughly. Make sure that you do not miss out on any deductions or tax credits that you might be eligible for.
A CPA can also ensure that you file your documents with the correct information and do not miss any deadlines. Having professional help allows you to plan your child’s education effectively.
Don’t overpay, save money!
The cost of raising a child in Colorado can exceed $30,000 annually, with a significant portion of it going toward education. When educational expenses are so high, you want to get all the deductions and credits you can. Hire a CPA today!