How best to pay for non-dependent's tuition?

Question

I am helping a non-dependent family member with her tuition costs at a community college (US - Illinois).

1. Is there any way for me to deduct that expense on my own taxes? I'm guessing not, since she's not a dependent.

2. Assuming not, what would be most beneficial to her? Should I pay the school directly or give it to her as a gift?

I am aware of two credits:

• American Opportunity Tax Credit - I don't think she is eligible because she has already done 4 years of college
• Lifetime Learning Credit - she should be eligible because her income is < 80,000

The tuition should be less than $18,000 for the year which I believe means it should be exempt from the gift tax. Is there any reason I should pay the school directly instead of giving it is as a gift or vice versa?

Answer 1

Is there any way for me to deduct that expense on my own taxes? I'm guessing not, since she's not a dependent.

No, but a silver lining is that you may not have to pay taxes either. If you pay directly to the bursar then this will be a non-taxable gift.

Assuming not, what would be most beneficial to her? Should I pay the school directly or give it to her as a gift?

Depending on what you consider beneficial, but to you it would be better to pay the school directly since that would make it exempt from gift tax.

Is there any reason I should pay the school directly instead of giving it is as a gift or vice versa?

Tuition is exempt regardless of the amount, so by exempting it as a tuition (i.e.: paying directly to the school), you can give the 18K in addition directly to her. Also, obviously, paying directly to the school means you know exactly what it is being spent on, whereas giving the money to her as a gift will let her do with it whatever she wants.