Individuals who have children going to school very soon or who recently had children and are looking to prepare for their college in advance, need to find strategic ways that they can reduce their taxes and also help with the college costs.
Parents should consider opening up a 529 plan and also review tax credits as well as other strategies they can use in order to ease the burden of high education costs. Here is what taxpayers need to know before opening a 529 plan.
Families that invest in a 529 college savings plan could have the option to utilize their tax-deferred funds. In order to avoid any levies, they will need to use these funds for qualified education expenses such as tuition fees, books, room and board, computers and much more.
Those investing in a 529 family plan should first start off by adding up their qualified expenses and subtracting tax-free education assistance. Families should also see if they qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit (both are subject to income limits).
The American Opportunity Tax Credit applies to the first four years of higher education, the Lifetime Learning Credit typically pays for undergraduate, graduate, or professional degrees.
There is one downside to the non-parental 529 plan that taxpayers should be aware of. The withdrawals from this plan may be counted as a student’s income on the next year’s Free Application for Federal Student Aid, or FASFA, which may affect any financial aid that a student is receiving.
Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.
