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4 Tax-Saving Strategies for College Funding

It seems there are as many ways to save for college as there are colleges. It pays to do some research and understand ways you can not only save for your child’s education, but also save on your yearly tax bill.

Depending on how much college costs, it’s possible to use tax strategies to save as much as you spend on college tuition (particularly in the long run). Here are a few tactics to consider:

Income shifting. This is the practice of “shifting” earned and unearned income to your child, so that you avoid paying taxes on that income. Your child may have to pay some taxes, depending on the amount and the age of your child, but will be subjected to a much lower rate. Note that unearned income (gifts) tax rules allow for a $13,000 annual exclusion per person, or $26,000 on joint returns.
Standard deduction and personal exemption. Parents can claim a personal exemption for their child as long as they provide more than half the child’s support. If your child uses their own income as a personal support (more than half), then they can claim the exemption instead.
Tax credits. There are several tax credits your child can claim, including the American Opportunity Tax Credit (AOTC)—worth up to $2,500 a year per student—the Hope Scholarship Credit, the Lifetime Learning Tax Credit, or the tuition and fees deduction. However, keep in mind that you can only use one.
Watch out for the Kiddie Tax. “Kiddie Tax” is tax on unearned income to minors. It applies to children under age 19 and full-time college students under the age of 24.

Strategies used for each family will undoubtedly vary. Some strategies, such as income shifting, only makes sense for a family who will not qualify for need-based financial aid. Income shifting may save taxes, but also might consequently decrease financial aid eligibility.

Curious which of these strategies might work for you? Contact me for advice specific to your family’s situation!

Westface College Planning can help navigate the financial aid process from start to finish. To learn how we can help you call us at (650) 587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.

_{Photo Credit: Great Beyond}

Get Financially Fit

You may tough it out on the football field or dive for volleyballs on your school team, but there’s far more to self-development than physical fitness. As you channel your focus on college, there’s no better time to dive past physical fitness. Get in shape for college by being financially fit.

1^st Step: Map out your “Meal Plan”

You need to start somewhere. Just like you would allocate your goal, including calories per day and ultimate desired weight, you need to set financial goals. Calculate a rough estimate of how much your top colleges will cost per year, along with daily or weekly spending. For example, you may limit yourself to $100 per week on essential expenses, and another $50 for extra items.

Even if you feel as though you won’t qualify for a grant or scholarship, apply! Unlike a loan, you won’t be obligated to pay back either, so why not give them a shot? Equally as important: Don’t forget about the FAFSA! Again, it’s free money in your pocket for college!

2^nd Step: Dive in Head-First & Track Your Progress

Without even the smallest inkling of understanding about your daily habitual spending, it’s difficult to know what you consider necessities versus other wants that may easily be cut out of your budget. For the first two weeks of your college life, track your daily expenses. Thankfully, technology will give you a hand with that. Apps make your budgeting experience a whole lot easier. Mint and LearnVest not only sync with your bank account, they even allow you to separate your purchases by category.

3^rd Step: Treat Yourself with a Cheat Day

As you train yourself from day to day, you may end up bogged down, unmotivated because the finish line seems so far out of reach. Every few weeks, allow yourself to let loose and purchase something a little past your budget, whether it’s a nice lunch at a restaurant or a new pair of shoes. Think of it as a reward. It should give you a much-needed boost to energize your spirit and feel proud of your accomplishments so far.

Westface College Planning can help navigate the financial aid process from start to finish. To learn how we can help you call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.

_{Photo Credit: Louish Pixel}

Building a Smart College Budget in 5 Easy Steps

Seniors: Keeping track of your everyday costs can be mind-boggling for students not particularly savvy at organization.

Financial preparation is one of the most valuable assets you’ll ever learn. It not only teaches you irreplaceable skills, it also paves your bright path to adulthood. A solid foundation will secure your independence. No ambitious college-bound student would want to rely on their parent’s meager allowance forever. The earlier you begin financial planning, the better!

If you create a clear-cut budget and stick to it, you’ll stay far ahead in the “paying for college” game. But you may agree this all sounds wonderful and still ask yourself, “Where do I start?” Follow these five steps and you’ll map out a game plan for your budget, monthly costs and how to pay for your overall college expenses:

Pick a School. Determine which school you plan to attend and when you hope to start.
Calculate Expected Costs. Make a list of all set (e.g. rent) and variable (e.g. entertainment) expenses, then estimate your average monthly cost of living. If possible, include an emergency fund.
Construct a Monthly Budget. Using a budget worksheet will help (the University of Illinois provides a straightforward one, but there are many more circling around cyberspace). If needed, consider ways to lower college costs. Then determine what to include when creating a budget for college expenses.
Determine Fund Sources. Money for school can come from any number of places. Be sure to explore all your options (parents’ savings, parent income, student income, grants, scholarships, other sources). Keep in mind all federal loans require a payback with interest. Weigh the possibility of a subsidized or unsubsidized loan. If those aren’t the right fit for you, check out private loans. PLUS loans are also available, but should only be considered after you’ve exhausted all other options.
Calculate What to Borrow. Available Funds – All Expenses = Your Projected Monthly Income. This will give you the maximum amount that will need to be borrowed.

Once you’re done creating a budget for college, the real challenge lies ahead: being consistent and staying on track. Limit your use of credit cards to emergencies and planned expenses. Track your spending closely and be wary of peer pressure.

Little changes will add up to sizable savings, if you know where to shrink otherwise unnecessary expenses. For instance, your instinct may tend to crave a fragrant blended coffee as you pass by Starbucks, but brewing a cup from home can make a difference of a whopping $3. It may seem trivial, but when you’re on a tight budget (and an admittedly avid coffee drinker, to boot), it adds up quickly. That coffee substitution alone would save you around $20 per week and $80 a month. Take a look at this handy infographic from USA Today College for more money-saving tips.

Part of the experience of college is to prepare you for real life. Forming good habits with money now will help you in the future. Even if you’ve already begun digging yourself in a seemingly endless financial hole, it’s never too late to establish mindful saving habits. So why not start now?

This blog was provided by Westface College Planning. For more tips and information, sign up for a free College Funding workshop or webinar or call us at (650) 587-1559.

Photo Credit: Tricia Adams