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Off to college: The nest is empty - and so are your pockets

As September comes to a close, those of us with kids starting college may be struggling. We are excited for their new adventure, and we are excited to have the house to ourselves for the first time in 20 years. We are also dreading the four or more years of penury as the bills roll in.

The good news is that there are tax credits and deductions that can ease the burden. You have already written those checks and maxed out your credit cards, but, come tax time, it may not hurt as much. Remember, though, that the Tax Code is particular: Every tax break, every credit and deduction comes with conditions. Work with a tax professional who understand the fine print.

First, "free" money may really be free. If your student has qualified for a scholarship or fellowship grant (at an eligible college or university), the funds are not taxable. In most cases, that includes Title IV need-based grants like Fulbright and Pell grants. Tuition reductions are usually tax-free, as well.

Under the American Opportunity Tax Credit program, a tuition-paying taxpayer may qualify for a tax credit -- as much as $2,500 for the 2015 tax year. The credit covers education expenses for each qualifying student; if you have two kids in college, keep their receipts separate. Again, there are conditions which the IRS has explained at length on its website.

For taxpayers who are not eligible for the AOTC, the Lifetime Learning Credit may be an option. This credit covers as much as $2,000 of the costs of qualified expenses. The credit is for all students, though, not each student.

In 2014, you may have qualified for the tuition and fees deduction. However, the deduction was among the "tax extenders" that expired at the end of the year. Congress may reinstate the deduction, though, so you may want to keep it in mind.

The list doesn't stop there. We'll review more options in future posts.

Source: Accounting Today, "A Back-to-School Tax Break Refresher," Michael Sonnenblick, Sept. 22, 2015

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