We all know that the cost of sending just one child to college can be exorbitant. If you happen to have more than one child in college at the same time then you are undoubtedly feeling the crunch as they head back to school this month. Along with figuring out how to cover the expenses related to higher education, you also have to consider the tax implications of your expenses. As a general rule, any money you give to someone, or pay on behalf of someone, is subject to gift taxes. There are, however, a number of ways to avoid incurring a gift tax on the money you spend on higher education.
First, you may pay tuition or medical expenses for anyone you wish free of gift taxes as long as you pay the institution or the provider directly. So make sure that you write out that check directly to the school, not to your child. That exclusion, however, does not apply to room and board, books, or other expenses related to college. For that, you must take advantage of the $13,000 yearly gift tax exemption. Each year, you may gift up to $13,000 to as many recipient’s as you wish free from gift taxes. This may cover a good portion of the additional expenses related to attending college.
If you spend more than the yearly exemption amount on college related expenses, be sure to consult with your estate planning attorney about estate planning tools that can be used to help decrease any tax obligation that could result.