With students returning to school, lots of parents may be wondering how to pay the cost. Two federal tax breaks can help. But what type of education is eligible?
I have two children in Catholic schools, and of course we can't deduct their tuition. But, I'm wondering, if my parents pay their tuition and write the check directly to the school, if there is a way that they could deduct it.- S.F., Providence, R.I.
Unfortunately, there's no federal income tax break to help offset the cost of sending children (or grandchildren) to private schools, said Robert J. Sclama, former head of the federal and state tax committee for the Rhode Island Society of Certified Public Accountants.
"Parent. Grandparent. Doesn't matter. There's no deduction," said Sclama, a CPA and financial planner in North Providence.
Some members of Congress have tried several times to change this, mostly by proposing changes to the Education IRA.
One change would let parents and others salt away more money each year in these tax-sheltered accounts (the maximum is $500). Another change would generally let you withdraw money tax-free even if it's used to pay tuition at private elementary and secondary schools. (Tax-free withdrawals are generally allowed only for college.)
Keep in mind that there are several federal tax breaks for college expenses - at public or private schools. For instance:
A parent (or someone else) who claims a college student as a dependent may be able to get a federal income tax break to help offset the cost of tuition and fees for the student's freshman or sophomore year, said Barbara C. Shuckra of the Internal Revenue Service. Known as the Hope credit, it's limited to $1,500 per student per year. If you meet the income limits and other requirements, this break can sharply cut your federal tax.
Another credit - the Lifetime Learning credit - is generally limited to $1,000 per family per year. If you're eligible, this, too, can cut your federal income tax.
If a grandparent - or anyone else - writes a check directly to a school to pay someone's tuition, the donor can reduce the size of his or her estate. This can help cut or eliminate any federal estate tax that may be owed upon the donor's death, Sclama said.
For more details, see IRS Publication 970, "Tax Benefits for Higher Education." For a free copy, visit your local IRS office, call 800-829-3676, or see the agency's Web site: www.irs.gov.