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Andrew J. Jordan, CPA, MSF is a licensed Certified Public Accountant. He achieved a successful career as a CPA, Financial Manager and Consultant for a variety of large and small businesses. Andrew is experienced in creating value for companies in industries ranging from staffing and professional services, retail automotive dealerships, manufacturing and real estate. He also has over 25 years experience assisting individuals and businesses with income tax planning and compliance. Andrew holds a Bachelor of Science degree in Business Administration from Wayne State University in Detroit, MI and a Master of Science in Finance from Walsh College in Troy, MI. His graduate education included significant elective study in Taxation. His services include: Accounting, Tax and Advisory Services. Visit andrewjordancpa.com for more information.

Saturday, January 22, 2011

2 Popular Tax Breaks to pay for College and other Education Planning Ideas

The cost of college can be challenging for most parents and young adults getting ready to start.  Even if one plans ahead chances are you will not save enough to cover all of the expense.  One can not discount the value of a college education.  A recent article in Time magazine estimated that nearly 40 % of the
 growth in jobs in this country will be in positions that require a bachelors degree or higher.

There are a number of tax breaks that can help offset the cost of college.  One generous tax break is the American Opportunity credit  (replaced the Hope Scholarship credit).  For 2015 the American Opportunity credit equals 100% of the first $2000 of eligible post-secondary education expense plus 25% of the next $2,000, for a maximum credit of $2,500.  This credit can only be claimed for 4 years.  The American Opportunity credit is also subject to income and other limitations but the income limits have been increased making it available to more individuals and married joint filers.

Another tax break not quite as generous is the Lifetime Learning credit.  The Lifetime Learning credit rules are unchanged for 2015 from previous years.  As before, the credit equals 20% of up to $10,000 of eligible education expenses for a maximum credit per year of $2,000.   The Lifetime Learning credit may be harder to max-out than the American Opportunity credit but provides more flexibility with respect to the amount of years of eligibility.  As the name implies this credit can be used for one's lifetime as long as the payments are for eligible college expenses and your income doesn't exceed the phase-out ranges.

You cannot claim both the American Opportunity credit and the Lifetime Learning credit for expenses paid for the same student for the same year.  However, you can potentially claim the American Opportunity credit for one or more students in the family while also claiming the Lifetime Learning credit for expenses paid for one or more different students in the family.

The American Opportunity credit and the Lifetime Learning credit are just two of the many tax tools available to help mitigate the enormous cost to educate yourself or a dependent.  Funding college expense should be a long term plan of not only saving but also thinking about how to take advantage of every tax break available.  It involves identifying the eligible tax credits, deductions and exclusions available and properly coordinating them with the savings or financial aid one may have available to fund college expense.  An example of this is the coordination of Section 529 college funding with the American Opportunity credit to avoid triggering taxable income.  See IRS Publication 970 section on American Opportunity credit coordination with a qualified tuition program for more information.  A little planning can avoid some issues.

There's no substitute for getting started early on saving for college(unless of course you are rich!).  Along the way it is a good idea to incorporate some tax planning along with your financial plan to accomplish this goal.    Your child can also be a big help by keeping their grades up to qualify for financial aid!  I wish you good planning and luck.  Feel free to leave comments or contact me should you want additional information regarding this subject.

Andrew Jordan, CPA, MSF, CGMA
ajordancpa@comcast.net

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