Introduction to "Tax Capacity" When planning for college, parents must be aware of the many income strategies available to increase the amount of family funds for future college costs.  These income strategies may be incorporated over a short or long term period.  While these strategies may not produce a direct college benefit, such as a grant or scholarship, they may produce tax benefits to the family as a whole, and therefore, increase the amount of family funds available to pay for college.  To gain the maximum effect of these strategies, the parents must be aware of, and understand the new education tax incentives. Because some families are not eligible for financial aid, they are not penalized by a loss of financial aid for shifting income and assets to their children.  Therefore, they should take full advantage of a child's lower tax bracket.  Accordingly, a key strategy is to focus on the benefits of the tax system.  This will be driven by taking advantage of opportunities in the child's tax return not available to the parent or grandparent (child's low tax brackets, child's personal exemption, use of lower capital gain rates, access to Coverdell Education Savings Accounts and Hope and Lifetime Learning credits, access to student loan interest deduction, access to the regular and  Roth IRAs). Since college costs are paid with after-tax dollars, strategies to lower income, gift,  and estate taxes can significantly reduce the cost of college for a client.  In addition, there are loan strategies that can reduce the cost of college for a client. Return to Education Startegy