Cost and affordability are common concerns when it comes to getting a college education, but even students and families who are focused on the economics of college may not be fully aware of the financial impact of going to – or going back to – school. When you become an accountant, there’s a good chance your clients who are preparing for, attending or paying off a college education will need your expertise to understand the various savings plans and tax deductions and exemptions they need to navigate.
Saving for College
No matter how or where it’s saved, money is money, right? As it turns out, not exactly – at least, not when it comes to college savings accounts, BankRate reported. Using a regular savings account as a college fund could backfire, making students appear to be wealthier than they really are and depriving them of the financial aid that should be available to them, BankRate reported. Yet your clients who are saving for their child’s – or even their own – college education might not know much, if anything, about specific college savings options like 529 plans. The problem is that your clients can’t ask you questions about financial options they aren’t aware of. If you know your clients are planning for a child’s future or considering going back to school themselves, you can be proactive and talk to them about how to choose the right savings plan.
How College Affects Income Tax
The intersection between college costs and income taxes can be complex. That’s why the website of the Internal Revenue Service (IRS) devotes a whole information center to explaining tax benefits for education. There are tax credits like the American Opportunity Tax Credit and the Lifetime Learning Credit that your clients may be eligible to take advantage of while they pursue their degree. There are also certain expenses students can deduct from their income tax payments, such as tuition and fees up to a certain amount, work-related education expenses or a qualifying student loan. The specifics of these and other credits and deductions can vary from one year to the next depending on changes in laws, so your clients will need your help to understand which credits and deductions apply to them in a given tax year.
Even years after your client graduates from college, his or her education can continue to affect income tax in important ways. Students who borrow federal funds to attend school can deduct the interest they pay on student loans. Your clients may receive forms like the 1098-E, but they may not know what to do with them unless you bring them up.
It’s common for some kind of financial adjustment to accompany the biggest life changes, and for accountants to help their clients plan for those changes. This help is especially important when it comes to college savings plans and education income tax benefits which your clients might not even know exist.