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TAX TIP: DUMP THE KID?

April 01, 2008

It's always hard to let go as the kids grow up, but the tax law might make it a bit easier.

There are two credits for higher education expenses: the "HOPE Credit" and the "Lifetime Learning Credit." These both phase-out at higher income levels (starting at $47,000 for single filers and $94,000 for joint filers).

If you are above the phase out range and are paying college tuition, it could make sense to forego a dependency exemption. If your student has income from a summer job or internship, they may have taxes of their own, taxes that they could offset with these credits. If your income is too high to use the credits, the family could be better off tax-wise if the parents forego their dependent exemption for the student. The student then may be able to claim the credits.

You may claim the credit on Form 8863. See IRS Publication 970 for more information.

This is another installment of our daily series of 2008 filing season tips.

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