Making Taxes Less Taxing with Education Credits

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Making Taxes Less Taxing with Education Credits

Making Taxes Less Taxing with Education CreditsHappy back-to-school season! Did you get your checkbook ready yet for all those expensive books, tuition, parking fees, lab fees, etc., etc., etc.? Not so fast! There are lots of options out there that will help you decrease your expenses.

First, let’s take a look at everyone’s favorite American Opportunity Credit. If you or your loved ones (spouse or dependents) are enrolled in a program leading towards a degree, certificate or other recognized post-secondary educational credential, have not completed the first four years of post-secondary education yet, and for at least one academic period are carrying at least ½ of the normal full-time work load, this credit is for you.

The credit is up to $2,500 of the cost of tuition, fees, and course materials. And this gets even better. Up to $1,000 of this credit is refundable, which means you can get $1,000 from the IRS even if you owe zero tax!

Don’t qualify for the American Opportunity Credit? No worries. The IRS has something in store for you too. It’s called Lifetime Learning Credit. It is perfect for those who are attending graduate school or who are enrolled in an undergraduate degree that does not meet the American Opportunity Credit requirements. In other words, as long as you are enrolled in one or more courses at an eligible educational institution, this credit is for you. The amount of the credit is up to $2,000!

Also, don’t forget that you can allocate your education expenses between your credits and job-related education expenses that are claimed as an itemized deduction.

If you have children or grandchildren that are not attending college yet, it’s not too early to start planning for that exciting time and reap the benefits now! 529 Plans and Coverdell Education Savings Accounts were designed with early birds like you in mind!

Making Taxes Less Taxing with Education Credits

 

A 529 Plan is a state or institution-operated plan that allows you to set aside savings for college or other post-secondary training for a designated beneficiary. Although, there is no federal deduction for a 529 plan contribution, most states do allow a tax deduction (AZ is one of them! Up to $4,000 for a married couple filing a joint return is deductible). Additionally earnings grow tax-free and are not subject to federal or state tax when withdrawn in order to pay for education expenses. Anyone can set up a 529 plan at any time and name anyone as a beneficiary (even a friend).

Coverdell Education Savings Accounts are similar to 529 plans although they are subject to multiple additional restrictions and the yearly contribution amount cannot exceed $2,000. However, just as with 529 plans, distributions to pay qualified education expenses are tax-free (including earnings).

Last but not least, don’t forget that you can claim a credit in the state of AZ for contributions or fees paid to a public school for support of extracurricular activities or character education programs. So, if Johnny wants to play in a band, don’t spoil his fun. You will get your invested money back through a tax credit and probably some beautiful music! AND, if someone in your family or circle of friends has a child that attends a private school, contributions to private school tuition organizations are also eligible for a credit on the state return!

Well, all good things must come to an end, including this blog. However, if you have any questions or would like to discuss in detail your options for investing in that beautiful framed diploma, we are here for you. Just e-mail us at info@gmlcpa.com or give us a call at 520-572-1248.

By | 2014-08-11T10:15:26-07:00 August 11th, 2014|Accounting, Blog|Comments Off on Making Taxes Less Taxing with Education Credits

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