Back to School, Back to Savings: Tax Tips for Families
The start of a new school year means supply lists, lunch packing, and busy schedules—but it can also be a great time to think about tax savings. Whether you’re buying backpacks for a first grader or helping a high school senior prepare for college, there are several ways to save on education costs. Here are some tax-smart strategies to keep in mind.
1. Take Advantage of Education Tax Credits
Education credits can provide valuable tax savings if you have a child in college or are paying for your own education. The two main credits are:
American Opportunity Tax Credit (AOTC) – Offers up to $2,500 per eligible student for the first four years of higher education. This credit covers tuition, required fees, and course materials.
Lifetime Learning Credit (LLC) – Provides up to $2,000 per tax return for tuition and fees for any level of higher education, including graduate courses and professional development.
Tip: The AOTC phases out at higher income levels, so it’s important to know whether your family qualifies. Keep receipts for tuition and qualified expenses, and make sure the school issues you a Form 1098-T at tax time.
2. Don’t Overlook Back-to-School Deductions
While many education-related deductions have been reduced or eliminated in recent years, some opportunities still exist:
Educator Expense Deduction – If you or your spouse is a teacher, counselor, or principal, you may deduct up to $300 of out-of-pocket classroom expenses—even if you don’t itemize.
Charitable Donations – Donating gently used clothing, school uniforms, or sports equipment to a qualified charity could provide a deduction if you itemize. Remember to get a receipt!
3. Plan Ahead with College Savings Accounts
Starting (or adding to) a college fund is one of the smartest financial moves a family can make.
529 College Savings Plans – Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses are also tax-free. Some states even offer a tax deduction or credit for contributions.
Coverdell Education Savings Accounts (ESAs) – Like 529 plans, these allow for tax-free growth and withdrawals, but have lower contribution limits and more flexibility for K-12 expenses.
Custodial Accounts (UGMA/UTMA) – While not as tax-advantaged as 529s, these accounts can be used for any expense benefiting the child and may have investment flexibility.
Tip: Even small monthly contributions add up over time. Consider setting up automatic transfers to make saving easier.
4. Keep Good Records All Year
The key to maximizing education tax benefits is documentation. Save receipts for tuition, books, supplies, and equipment. If you’re a teacher, keep a log of classroom purchases. For 529 plans, track your contributions and withdrawals to ensure they’re for qualified expenses.
Final Thought
Back-to-school season isn’t just about shopping—it’s also a chance to review your family’s financial plan. By taking advantage of education credits, deductions, and smart savings strategies, you can make the school year a little easier on both your schedule and your wallet.
If you’d like help determining which education tax benefits apply to your family, Carlson Hearne CPA is here to guide you. Contact us today to plan ahead and make the most of your tax savings this school year.