Tax Break for College Tuition Payments

In,The,Classroom,Multi,Ethnic,Students,Listening,To,A,Lecturer

Tax Break for College Tuition Payments

   If you are writing a college tuition check, there may be a hidden tax break that will allow you to deduct a part of your college tuition payment. In order to do this, you must utilize a ‘Section 529’ College Savings Plan in one of the 26 states that provide a tax deduction or credit when you deposit the money. People currently using Section 529 plans are well aware of these popular tax breaks. However, there are still plenty of others that currently pay state tuition but don’t participate in the Section 529 plan. By first depositing the funds into a Section 529 plan and then withdrawing for the state tuition payment, you may qualify for deducting your state tuition. The deduction is allowed (in most cases) without regard to your income status. A ‘Section 529′ College Savings Plan is best known for its Federal Benefits. The earnings on the plan are tax free if you use them for higher education expenses. The current Federal law is set to expire in 2010 unless an extension is passed. Most states conform to the Federal law in allowing tax free earnings on the Section 529 plan. However, they also award a state tax break for residents’ contributions to the state’s own 529 plan. Kansas and Maine, starting next year, will give deductions for deposits into any state’s plan. Since the state deduction to the plan is immediate, you can deposit the funds into the ‘529’ account then withdraw from the account within a short period. The worth of the deductions depends on your state’s tax rate and whether your annual tax break is limited for making a 529 deposit. To take advantage of the 529 Savings Plan, visit savingforcollege.com, click on “529 Plans”, then click on “529 Plan Details.” Click on the state in which you reside for details on its savings plan. Then browse through the state’s homepage to read up on how to open an account and to withdraw money later.   Many state officials do not like their plans to be used as tax breaks, but few actually try to prevent it. So if you plan on keeping money there for only a short time, you should choose the most conservative investment option. New Mexico is one of the states where the account must be open for a year before money can be withdrawn from it. The state of Michigan has limits as well.States prefer that residents start saving early, to benefit from compounding and in order to get tax breaks for 20 to 25 years instead of just four. It is a good idea to try out this plan with your tuition money though, as four years of deductions is better than none.

Maximum Annual Deductions

Here are the maximum annual deductions or credits available. If your state isn’t here, it either doesn’t have income taxes or doesn’t offer a tax break for “529” deposits.

 

State/District

Annual Cap on Tax Break
Colorado Unlimited deductions up to the amount of your taxable income*
Connecticut $5,000 deduction; $10,000 for married couple filing jointly
District of Columbia $3,000 deduction; $6,000 for married couple filing jointly; a couple with one child must have two accounts to get the full $6,000
Georgia $2,000 deduction per beneficiary; declines above $50,000 in income or $100,000 for married couple filing jointly
Idaho $4,000 deduction; $8,000 for married couple filing jointly
Illinois $10,000 deduction; $20,000 for married couple filing jointly
Indiana $1,000 tax credit (20% of deposit up to $5,000) starting in 2007
Iowa $2,500 deduction per beneficiary; $5,000 for married couple filing jointly
Kansas $3,000 deduction for each beneficiary; $6,000 for married couple filing jointly
Louisiana $2,400 deduction per beneficiary per year; $4,800 for married couples filing jointly; state matches deposits on up to 14% of
deposit depending on income
Maine $250 deduction per beneficiary starting in 2007 if income is below $100,000 (or $200,000 for married couple filing jointly)
Maryland $2,500 per account holder per beneficiary (or $10,000 if each parent maxes out the deduction in both of the state’s 529 plans)
Michigan $5,000 deduction; $10,000 for married couple filing jointly
Mississippi $10,000 deduction; $20,000 for married couple filing jointly
Missouri $8,000 deduction; $16,000 for married couple filing jointly (both spouses must have income and separate accounts)
Montana $3,000 deduction; $6,000 for married couple filing jointly
Nebraska $1,000 deduction per household
New Mexico Unlimited deductions up to the amount of your taxable income*
New York $5,000 deduction; $10,000 for married couple filing jointly
Ohio $2,000 deduction per beneficiary per household
Oklahoma $10,000 deduction; $20,000 for married couple filing jointly
Oregon $2,000 deduction per household
Rhode Island $500 deduction; $1,000 for married couple filing jointly
South Carolina Unlimited deductions up to the amount of your taxable income*
Utah $1,560 deduction per beneficiary; $3,120 for married couple filing jointly
Vermont $100 tax credit (5% of deposit up to $2,000) per beneficiary; $200 for married couple filing jointly
Virginia $2,000 deduction per year, per account. Multiple accounts are fine, up to certain limits
West Virginia Unlimited deductions*
Wisconsin $3,000 deduction per beneficiary per household

*These states (and others) limit the total amount you can have deposited in a 529 plan at any one time.

 

 

We hope you found this article about “Tax Break for College Tuition Payments” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

To receive our free newsletter, contact us here.

Subscribe our YouTube Channel for more updates.

Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

 

Alan L. Olsen, CPA, Wikipedia Bio

 

 

GROCO.com is a proud sponsor of The American Dreams Show.

 

American-Dreams-Show-Accounting-firm-in-ca-cpa-tax-advisors-groco-alan-olsen

The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:

Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…

Untitled_Artwork copy 4

MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness.  It’s mission statement:

In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.

Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.

/GROCO
Posted in

IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals) For use in preparing 2008 Returns

IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals) For use in preparing 2008 Returns For use in preparing 2008 Returns Link: http://www.irs.gov/pub/irs-pdf/p4681.pdf This publication explains the federal tax treatment of canceled debts, foreclosures, repossessions, and abandonments. Generally, if you owe a debt to someone else and they cancel or forgive that debt,…

Update on Homebuyer’s Credits

Update on Homebuyer’s Credits Dear Client & Friends: On November 6, the President signed into law H.R. 3548, the ”Worker, Homeownership, and Business Assistance Act of 2009.” The new law extends and generally liberalizes the tax credit for first-time homebuyers, making it a much more flexible tax-saving tool. It also includes some crackdowns designed to prevent…

Revocable Living Trust: Family Financial Security

Revocable Living Trust: Family Financial Security The times in which we live have brought new uncertainty and increased anxiety to our front doors. With the threat of terrorism and the reality of war, our safety and that of our loved ones are at the forefront of our concerns. For many a continually disappointing investment environment…

Municipal Bonds: A Source of Tax-Free Income

[vc_row][vc_column][vc_column_text]There’s one readily available and legal source of untaxed income that we know of: municipal bonds. These securities are issued by state and local governments, school districts, hospitals and other public agencies to support community projects and services. To permit these worthy endeavors to raise money economically, Uncle Sam exempts the interest that they pay…