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Posted by John H. Fisher on October 23, 2007, 6:14 pm
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> I have a friend whose child is a senior in college, and will
> therefore graduate next May, 2008. The friend has taken all
> appropriate education tax credits for the college years to
> date, but is trying to figure out how to maximize tax
> credits on next year's taxes:
>
> The child may or may not qualify as a dependent next year,
> depending pretty much entirely on when the child gets a job
> after graduation (majoring in political science) and
> therefore how much money the child makes for the year (all
> other criteria for being a dependent would most likely be
> met: relationship, residency, age, marital status, student
> for 5 months of the year).
>
> Second semester tuition is due in January 2008. Tax credits
> for this year (2007) are already at a maximum for the
> parent. [Private college...$$$!].
>
> How can my friend structure the payment so that either the
> parent (with the child as a dependent) or the child (filing
> not as a dependent) can take the tax credit in 2008,
> depending on somewhat unpredictable future events of that
> year?
>
> Usually, the parent sends a check directly to the school.
> Can the parent write a check in January to the child, who
> can immediately either endorse it to the school, or deposit
> it and send an identical check amount to the school? Or
> would this approach automatically construe the money as a
> gift, making the child the only one eligible to take the tax
> credit? [It will be more than $12,000, so should it be two
> checks, one from each parent, or would that make it look
> even more like a gift?]
>
> Are there any reasonable ways around this dilemma?
I'd tell the parent to cross that bridge when they come to
it. The parents may claim the child's exemption until the
child is Age 24, as long as they provide more than 1/2 the
child's support. The likelihood is that the benefit will be
greater to the parents if they can claim the child.
Qualified education expenses paid by a dependent, for whom
one can claim an exemption, or by a third part for that
dependent, are considered paid by that person. This would
be your friends who are claiming the child.. If your
friends are not eligible to claim an exemption for a
dependent, and they paid all qualified education expenses,
only the dependent can deduct the amount they paid. The
amount they paid is treated as a gift to their dependent.
http://www.irs.gov/pub/irs-pdf/p970.pdf
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