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Daniel Cullinane CPA p 848-250-9587
There are education incentives that provide tax benefits to assist you in funding the cost of a college education for your family members but some of them are subject to phase outs based on AGI, thereby limiting the incentives that may be available to you.The tax credits and deductions available to help pay college costs include
Probably the most popular tax incentive college funding method is a Section 529 plan (qualified tuition program) since it is available to all taxpayers, regardless of their income. These plans offer the following benefits
Funds deposited into a Section 529 plan for the benefit of another person are considered a gift for gift tax purposes. Although the plan's assets are excluded from your estate, there are gift taxx considerations. For 2014 and 2015, you can use tp to five years of annual gift exclusion up front allowing you to gift as much as $70,000 per beneficiary , $140,000 if married, without using any of your lifetime credit gift tax exclusion or incurring a gift tax. However, to the extent you used your annual gift exclusion to fund a 529 plan, you will have to reduce other tax - free gifts to stay within the annual exclusion amount of $14,000 per donee. Also, if your state of residence allows a deduction for the contributions to the plan, you generally only be allowed to take the deduction in the initial year that you fund the plan for one year's amount.
Private institutions can offer a prepaid tuition program if they satisfy Section 529 requirements. Distributions from these private plans used for a qualified education expenses will also be tax free.
Section 529 plans also have their disadvantages. Contributions to the plans are not deductible for federal income tax purposes. In addition, you lose some control of future investment decisions although you do retain investment option flexibility within the plan's choices. Also, even though you can withdraw funds for uses other than qualified higher education expenses, you will have to pay a 10% penalty on the earnings, similar to a premature distribution from a retirement account.
AMERICAN OPPORTUNITY AND LIFETIME LEARNING CREDITS
The American Opportunity credit and Lifetime learning Credit are available if you pay qualified tuition and related education expenses which includes course materials such as books, supplies, and equipment. Room and board expenses do not qualify for either credit. However these credits have income limitations which phase out the available credits. The AOC is phased out ratably with AGI between $80,000 and $90,000 if single or head of household and $160,000 to $180,000 if married jointly. The Lifetime Learning Credit is phased out ratable with AGI between $55,000 and $65,000 for 2015 is single or head of household and $110,000 to $130,000 for 20154 if filing jointly