Education and Tuition Claims at Tax Time

I am right in the middle of the annual early season tax rush and many of the early filers expect refunds. I always get a few new clients each year as referrals from existing clients and it is always interesting to see previous returns they have either done themselves or have paid someone else to complete.

One area of particular interest is the claim for various tuition and education expenses. In most instances, I see that previous filers have almost universally transferred the claim from a dependent child to one of the parents. Of course this is permitted but my question is why would someone do this without at least explaining the consequences of making that choice. After questioning these clients, no-one has ever explained their options – or their child’s options!

While I find this strange, I guess it is the easy way out for many preparers – they don’t have to take time and run things both ways and the explain to their clients. I don’t see it that way at all.

When I explain the potential short-term advantage to the parent in question versus the potential long-term benefit to their child, they have always opted to change the filing and leave the unclaimed tuition and education items in the hands of their children.

So – what do I show them? All of these expenses involve post-secondary education and the intention is that the child will pursue some level of advanced career placement with the potential to earn above-average income, which is great to see. Wouldn’t it be nice for them to have the luxury of choosing when to claim those accumulated expenses after they begin working? Wouldn’t it be nice for them to maybe have an entire year of employment income – and pay ZERO taxes on it? Would that help reduce or maybe even eliminate debts that had accumulated during their education – including Student Loans?

Something worth considering before you rush to file your return – the potential tax savings in the hands of the student are major considerations versus the potential for some short-term savings in the hands of an employed parent. Don’t choose the easy way out – do the numbers first.

Ian Whiting

Ian R. Whiting CD, CFP, CLU, CH.F.C., FLMI (FS), ACS, AIAA, AALU With more than 40-years of experience in the industry, Ian has qualified 3 times for MDRT, completed LUATC in 1979, the LUAC Financial Planning Skills Course and attended numerous Schools in Agency Management and Sales Management through LIMRA. He obtained his CLU in 1987 while also completed his IFIC qualification and completed his Fellowship in the Life Management Institute with a specialty in Financial Services in 1988. In 1989, he completed qualifications for his Chartered Financial Consultant designation. In 1992, he qualified as an Associate of the Academy of Life Underwriters (Head Office underwriter qualification) and in 1993 he completed his Associate, Customer Service designation program through LOMA. In 1997, he qualified as a CFP and also completed his courses and exams to obtain the Associate, Insurance Agency Administration designation. In 1999, he completed the study and examinations to qualify as a Trading Officer, Partner and Director for Mutual Funds with the BC Securities Commission. As a result, he is also qualified as both a Branch Compliance Manager and Head Office/Provincial Compliance Officer. He served for nearly 18 years with the Canadian Forces (Air) Reserve (reaching the rank of Captain) primarily working with Air Cadets and was award the Canadian Forces Decoration (CD) in 1982. Long known as a maverick and forward thinker in the financial services world, Ian enjoys the challenge of learning new material and planning for the future evolution of his chosen profession.