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    Home / College Guide / Ultimate College Guide for Parents
     Posted on Friday, August 05 @ 00:00:05 PDT
    College

    It’s early Sunday morning, and the silence of a long week is broken by the sound of Mr. Smith’s cell phone on his nightstand. It’s the hospital calling about his daughter, who has been injured and is in intensive care. He rambles on with question after question about his daughter’s well-being, giving only vague answers. The attending doctor inquires if Mr. Smith has a HIPAA authorization, or a health care proxy for his daughter. Mr. Smith ignores the question and repeats his concerns about his daughter’s injuries. The doctor continues to ignore the question and return to what appears to be an inadvertent discussion about legal documentation. How is this possible? Legal Matters: There are many legal changes that occur when your child turns 18, and then goes off to college. Going out on their own is a huge stepping stone in achieving individuality, but what most parents and students don’t realize is that there are huge legal changes that take place when your child becomes an adult. Your child will be 18 years old by the time you are unable to make legal decisions or access information that could be considered private without their permission. And unfortunately, there isn’t just one single legal document to address this problem.

    There are four important documents that every adult should have. These legal tools can help make unexpected events less stressful for your family. BIO| Jamie Hargrove, CPA, AttorneyBio: Jamie Hargrove, CPA, Attorney Healthcare Power of AttorneyAlso known as a healthcare proxy, this document gives parents the ability to make decisions about their child’s healthcare. If a student goes to school out of state, it’s prudent to have a healthcare power of attorney from both states, since some healthcare professionals may be hesitant to accept an authorization form they don’t recognize. HIPAA AuthorizationThis document permits healthcare professionals to share the student’s otherwise private healthcare information with any person or persons that the student requests. Living Will DeclarationSometimes referred to as an advanced care directive. According to a 2020 Gallup poll less than half of all Americans have a living will declaration. This vital document accomplishes the following: This document informs doctors, medical teams and family members how the patient would like medical care to be handled in a critical situation. It specifies the patient’s values and what’s important in treatment, especially when conditions are life-threatening.

    Protects patients from unwanted and, in some cases, an unnecessary medical intervention which may only prolong death and can result in continued pain and suffering.Financial Power of AttorneyWhen parents wish to help manage their child’s finances, this document can authorize them to do so. It allows parents to act on a child’s behalf in all financial matters. Many situations can benefit from a financial power-of-attorney. A financial power of attorney can be useful in many situations. For example, a student may become incapacitated by an accident or fall, or become permanently disabled from making financial decisions. The designee can manage the bank accounts, file taxes returns, and make loan payments. As we have already mentioned, much can change when your child turns 18, and goes to college. Even if your child doesn’t have much, it is important to make financial and healthcare decisions. So pack your student’s bags, load up the car, fly the school banner, and call your lawyer. Taxes, taxes and more taxesFinancing a college education can take a lot of resources. There are tax breaks that can be used to offset the cost of college tuition. Here, we’ll cover tax credits and one deduction for education-related expenses.

    Continue scrolling Graphic: College Preparation for Parents American Opportunity Tax Credit. An annual tax credit of up $2,500 for qualified education expenses is available to eligible students starting in 2021. The credit can be used to pay 100% of the QE expenses up to $2,000 and 25% for the $2,000 following QE expenses. If your 2022 adjusted gross income (MAGI), $90,000 or lower ($180,000 for married filing together), you may be eligible for the credit. MAGI, for most people, is their adjusted gross income. Also, the AOTC does not include an LLC. A portion ($2,000 of $2,500) is a refundable cash credit. That means if you don’t owe any taxes, you can get up to $2,000 of the AOTC refunded to you. That means Uncle Sam will send you a check. Nice! Important to remember is that the maximum limit for eligible students is four years. This includes any Hope credit years. Lifetime Learning Credit (LLC). While the AOTC is geared toward undergraduate education, the LLC can be used for both graduate and undergraduate education. It also allows you to take courses that will help you acquire or improve your job skills. These are just a few of the differences. The AOTC limit for students is four years.

    The LLC doesn’t have time limitations. AOTC requires that at least half-time enrollment be completed, while the LLC allows for one course. AOTC also offers a refundable credit, but LLC does not. The LLC cannot offset taxes due. The MAGI phase-out ranges for AOTC & LLC for tax year 2022 are identical ($90,000 or lower for singles and $180,000 for married filing jointly). To receive the full credit (no phase-out), the amounts are $80,000/$160,000.The AOTC is per student, while the LLC is per taxpayer.While there is no “double dipping” with the two credits, you can use the credits on the same return as long as they are not for the same expenses and the same student. The AOTC can be used to cover expenses for a child entering her freshman year at college, and the LLC may be used for expenses related for an online graduate program of your choosing. Student loan interest deduction A student loan interest deduction may allow you to deduct as much as $2,500 annually. The MAGI phase-out is based at $70,000, and is eliminated at $85,000 for single filers ($145,000 to $175,000 for married filing together filers). The student loan interest deduction can’t be used to pay AOTC or LLC. You can use both an AOTC deduction and an LLC deduction on the same return.

    However, interest deductions can be taken on student loans. In addition to the tax credits and deductions available, it’s also prudent to consider maximizing tax benefits by planning for educational expenses early and setting aside funds to invest with tax-free earnings in qualified plans (such as 529s or Coverdells). Even if you’re planning to support a grandchild’s education, for example, the tax savings possible by setting aside funds well in advance with qualified plans will easily eclipse the tax credits from funding for education expenses as they’re incurred. After years of preparation, sending your child to college can be one of the most rewarding experiences as a parent. This can be a very exciting time for students and parents. Knowing what legal changes to expect can help you prepare for any unexpected situations. Similarly, tax incentives for such a meaningful investment in a child’s future can lessen the financial burden. As with many major life events, the advice of your family’s financial planner, accountant, and attorney can guide you through this transition. TurboTax Partners: More Information How to report FAFSA college money on a federal tax return. TurboTax CPAs reviewed the content to ensure accuracy.

     
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