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I am asked this question all the time. Does your son have income? If so, he must file a tax return. However, if your income is too high to claim the education credit, you can give up your claim to him as a dependent, but if you provide more than 50% of his support, he cannot claim himself. This means that his personal exemption, worth a $4000 deduction (usually about $1,120 of tax savings), goes unused. However, he gets to claim the American Opportunities tax credit, which is worth $2500, of which $1500 is refundable. So there is a net savings by you not claiming him, and him filing and taking the education tax credit.
I am not sure that you allowing him to claim himself will help with the FAFSA. I have had several clients tell me that as long as you are his parents, your income will be considered, unless he is married or in the military. I ran into this with my daughter (who will be a senior in college, and is in the Navy ROTC program, so she CAN claim herself) and my nephew (also in the Navy). My other nephew and my niece, even though they are living on their own (and have kids) but are not married, both have to include my brother's income on their FAFSA forms. So just having him claim himself might not be enough to get him more money on FAFSA. But it will work for the educational tax credits.
I hope this answers your questions! Let me know if you have any more.
Thanks! Have a great week!