Tax Incentives for Education
There are many tax incentives for education that you can take advantage of if you know where to look. Below are a handful of tax incentive opportunities that will help as you look to pay for your child’s college education.
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Individual Retirement Accounts – The traditional 10% penalty for withdrawing from your retirement account is waived when traditional and Roth IRAs are used to pay for qualified education costs of yourself, your spouse, your children or even your grandchildren. Taxes on these withdrawals may still be due, however.
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Qualified Tuition Programs (529 plans) – Earnings in these plans grow tax-deferred and distributions are tax-free when used for qualified educations costs such as college.
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Coverdell Education Savings Account (ESA) – Much like 529 plans, earning grow tax-deferred and distributions are tax-free when used for qualified education costs. ESAs can also be withdrawn tax-free for primary and secondary school expenses before the year 2013.
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Lifetime Learning Credit – You may be able to claim a tax credit for 20% of up to $10,000 for tuition and other mandatory college fees. This can be a $2,000 tax credit. Consult with a tax professional to see if you are eligible for this tax credit.
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Tax-Free Education Assistance – Your employer can be a great resource for helping pay for college expenses. Employers have the ability to pay and deduct up to $5,250 in college and graduate school costs for each employee. This particular tax incentive can only be used on the employee and not for an employee’s child or other family member.
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Deduction for Student Loan Interest – Student loan interest, up to $2,500, may be deducted. For 2011, the deduction is phased out for incomes between $60,000 and $75,000. A student claimed as a dependent may not take the deduction on his or her own return.
Taxation
Tax matters can be very difficult to understand which can lead to missed financial opportunity. When paying for college, you want to be sure you are taking advantage of every opportunity available. At BatesCarter, we like nothing more than digging deep to find deductions, credits and other tax savings to help you afford a college education. Of course, our tax work is technically proficient and absolutely meets the letter of the law. But we are as assertive as possible on your behalf.
Our goal is to make sure that you don’t pay a penny more than you owe, using every general and industry-specific tax break available. Contact us today if you would like to learn more about certain tax incentives you may be eligible for as you look to pay for a college education.
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