What considerations do parents need to make when having a college student, with regards to support and taxes?

Question

I have a son who will be entering college next fall. He has a series of grants and scholarships that will cover a portion of the cost. He is looking for a job for the summer to help with another portion. However, my wife and I are still expected to obtain enough money to pay nearly half of the cost.

Right now, that amount is more than we have available in our budget. However, a future portion of an inheritance from my mother has been offered to my son, to cover the majority of the remaining cost.

What I don't know is what considerations need to be made with regards to all of this, with regards to taxes, etc. Does this mean, because of the scholarships, etc. that since I'm not providing 50% of his support, he is no longer eligible to be considered for taxes? I will be providing insurance coverage, some money, etc.

Answer 1

I cannot answer how this will affect your tax status.  You should definitely check with a tax advisor on that one.

However, I do have advice on how this might affect your son's financial aid eligibility for the next school year.....

If your mother sets up a 529 plan with your son as the beneficiary, the amount used for his schooling will not affect his financial aid eligibility next year.  However, if she makes a payment to the school on his behalf, or gives the money directly to you or to him, then it will be counted on the FAFSA next year as an asset.

Answer 2

Claim him, get a Parent Loan and its possible to get some tax deduction for the interest expense.  The deduction phases out at higher incomes.

Do NOT co-sign any Federal loans.  You may be signing documents for a variety of reasons but avoid co-signing a promissory note.

The scholarships and other assistance do not jeopardize the tax status - looks like he's still a dependent for school and tax purposes.

Answer 3

I think you are thinking way to hard about this re: taxes.  He's your kid.  You are putting money towards his college. You are likely still paying for health insurance for him, feeding him, doing his (or providing a place for him) to do laundry when he comes home on holidays.

Claim him.  It shouldn't matter he chose an incredibly expensive school and is having to go through Grandma,  if he was going to a community college and you were paying 2,000 a year and he blew the grandma money on stereo equipment you could claim him.  So why not now?  

Every parent knows there is a lot more to "providing half their support" besides a college tuition bill.  Businesses call them "incidentals"  I call them "life with a teenager".

Good luck.