Education Expenses

SAY GOODBYE TO THE COLLEGE TUITION DEDUCTION

Posted on Aug 30, 2017

It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive. But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that may offer a more valuable tax break: The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles). Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $130,000 per year (or singles making $65,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student. But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that help reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives. Please call if you’d like an overview of the alternatives available to you. So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction is generally the only means you have to reduce your tax bill. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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The rules for withdrawing from a 529 college saving plan

Posted on Aug 29, 2017

Here’s an overview of three types of 529 plan distributions. Qualified withdrawals. When you take money from the account to pay for college education expenses such as tuition, fees, books, supplies, and equipment, the withdrawals are generally tax- and penalty-free, no matter the age of the account beneficiary. Caution: Part of the distribution may be taxable when the account beneficiary receives tax-free assistance such as a scholarship. In addition, you must coordinate 529 withdrawals with the American Opportunity Credit and Lifetime Learning Credit, as well as distributions from Coverdell education savings accounts. These rules prevent the use of the same expenses to obtain multiple tax benefits. Nonqualified withdrawals. The earnings portion of withdrawals that are used for anything other than qualified education expenses are taxable. You’ll also have to pay a 10 percent penalty on the earnings, unless an exception applies. Rollovers. You can deposit or rollover withdrawals into the 529 plan of a family member, or into another account of which you are the beneficiary. When the rollover is completed within 60 days after you take the initial distribution, it’s not taxable. If you have questions or need help calculating 529 plan withdrawals, please call our office. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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College or retirement – Which should you fund first?

Posted on Jul 7, 2017

Saving for your children’s education or your own retirement – how do you decide which is more important? A typical retirement will generally last longer and cost more than your child’s education. If you cannot adequately fund both, maximize your retirement savings first. There are far more options for your child to finance his or her college education than there are for you to fund your retirement. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Considering paying for your child’s college education?

Posted on May 11, 2017

Should you pay for your child’s college education? Or should your child find the financing? There are compelling arguments for both sides, but ultimately, your family needs to do what’s best for your financial situation. Most families find that a combination of both works the best. Parents should pay. Arguments in favor of shelling out your hard-earned cash for a son’s or daughter’s higher education can be compelling. For one thing, college is a very expensive proposition these days. A year of undergraduate study at a private university can easily top $30,000 and public in-state schools can run over $12,000. Of course, if your student decides to get an advanced degree or go to medical or law school, he or she can run up a bill exceeding the cost of your home mortgage. Advocates of this point of view ask, “Do you really want to saddle your kid with that kind of debt so early in life?”   They add that if your child ends up working to pay for college, that’s less time available for study and making friends. And, of course, friendships built in college can generate a wealth of opportunities for a future career. Also, by investing in tax-deferred 529 plans, parents can withdraw funds free from federal and some state income taxes when it’s time for college. The child should take the responsibility. Others argue that covering the cost of your child’s college education should not be your priority. After all, they reason, your kid has a lifetime to pay back student loans, and making loan payments can generate a positive credit history. Advocates of this position also argue that kids who have to pay for their own tuition, books, and living expenses learn responsibility and value the investment that college represents. They also point to available tuition reimbursement plans provided by some companies or the military service option as a way to get a college education without breaking the bank. Those on this side of the debate often argue that 529 plans are overrated as a savings vehicle because investment options can be limited and tax rules are likely to change, undermining future tax benefits. Finally, they reason that a parent’s own retirement savings should take precedence over saving for a child’s education. Making the decision. Of course, your family’s dynamics, the importance you place on a college education, and your personal financial priorities will factor into this decision. If you’d like help looking at the pros and cons of this important issue, give us a call. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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