Oscar Hernandez, 52, brings home more than $200,000 a year from the successful pipe-laying business he founded 20 years ago: too much to claim the American Opportunity tax credit, which would help defray son Enrique's college costs (the max income is $90,000 for singles).
The tax deal extended this credit, worth up to $2,500, until 2017.
Enrique, 18, works for his father part-time during the school year and full-time over the summer, earning about $25,000 annually.
To maximize tax savings for the whole family, Syracuse CPA Gary Carpenter suggests that Oscar forgo claiming his son as a dependent and have Enrique cover his $14,000 annual tuition bill.
That way, Enrique can claim an AOC equal to his tax bill, roughly $1,800 (this strategy works only if your kid pays lots in taxes). Oscar can make the tuition money a gift -- that tax-free cap is $14,000 in 2013.
How to avoid catching the attention of the IRS.