I paid my kid sister's tuition last year. How do I approach that for tax purposes?

January 3, 2008 2:17 PM

I paid my kid sister's tuition last year. How do I approach that for tax purposes?

Can I possibly get a tax credit? Can she?

posted by joshjs to work & money (7 comments total)

If you try to deduct it then it is taxable income for her. It's that simple.

Someone is going to pay taxes on that money.
posted by Steven C. Den Beste at 2:25 PM on January 3, 2008

IANATL, but no, and no. Tax credits are for paying your own tuition, and those of your dependents. Basically it was a gift. If it was more than $11K, you should report it as a gift (but you won't have to pay taxes on it because of the lifetime exclusion). If you want to call it a loan, you could eventually write it off as a bad loan but that's about it.

If you want to do this in the future, just give her the money and let her pay the bill. Then if she's entitled to a credit she can get it. Or, if she's still a dependent of one of your parents, give the money to them.
posted by ubiquity at 2:26 PM on January 3, 2008

You'd have to claim your kid sister as a dependent to claim the credit, and she probably isn't your dependent, so you wouldn't be able to do that.
posted by ikkyu2 at 2:51 PM on January 3, 2008 [1 favorite has favorites]

Basically it was a gift. If it was more than $11K, you should report it as a gift (but you won't have to pay taxes on it because of the lifetime exclusion).

I'm pretty sure that tuition and medical expenses are exempt from gift tax anyway, as long as you paid them directly.
posted by craichead at 3:47 PM on January 3, 2008

You could possibly be entitled to claim her as dependent, if you meet some other criteria. Did you pay at least half of her total living expenses last year? Did you support her financially more than anyone else (including she herself) did? Did she live with you when she wasn't at school? Is she younger than 24 (or younger than 19 if she was only in school part time)? If all of those conditions hold true, you may be entitled to claim her as a dependent, in which case you would be able to claim a deduction for her. But you should ask your accountant. You also need to make sure that both she and your parents (and anyone else who may have been thinking about claiming her) fill out their taxes without claiming her so that she doesn't get claimed more than once, which would (I have been told by my accountant) likely result in all of you being audited.
posted by decathecting at 3:57 PM on January 3, 2008

I'm pretty sure that tuition and medical expenses are exempt from gift tax anyway, as long as you paid them directly.

craichead is right about this. I forgot about the educational and medical exclusions. But I'm still right about the other stuff. ;-)
posted by ubiquity at 4:15 PM on January 3, 2008

craichead is right. Gifts paid directly to a educational institution for tuition are exempt from gift tax. IRS.GOV has more info.

As a general rule, you never want to use up any of your lifetime exclusion before you die, because if you do, you have a file a gift tax return every year for the rest of your life, even if you don't give any additional gifts.
posted by fengshui at 4:17 PM on January 3, 2008