Many higher income parents gain little or no benefit from having their college bound children as dependants on their tax return.
Your dependency write-off for your college kid is partially phased out between an AGI of $250,200 and $372,700 for joint filers and between $208,500 and $331,000 for heads of households. So giving up that dependency deduction on your 2009 tax return may not cost you all that much. If your child has substantial part-time income and has a tax liability, they may benefit by filing independently.
Both the American Opportunity credit (maximum $2,500 for 2009) and the Lifetime Learning credit (maximum $2,000) provide a terrific tax benefit for those who qualify.
The American Opportunity credit is phased out starting at an adjusted gross income, or AGI, of $160,000 for joint filers and $80,000 for unmarried individuals. At AGI levels of $180,000 and $90,000, respectively, the credit is completely phased out. The Lifetime Learning credit is phased out starting at AGI of $100,000 for joint filers and $50,000 for unmarried individuals. At AGI levels of $120,000 and $60,000, respectively, you're completely ineligible. As you might imagine, plenty of parents fall into the phased-out category. But even if you're among them, these valuable credits may not have to go to waste after all.
An independent college student could possibly gain a sizable tax savings.
Your tax advisor can run a comparison to determine if this may benefit your family situation.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).