Education tax planning can optimize the available breaks for saving and paying for school expenses. Here are some tips.
Saving for education
- Section 529 plans include prepaid tuition programs and college savings accounts. Prepaid tuition programs let you buy future tuition credits at today’s rates, while college savings accounts let you set aside funds in an investment account. You get no tax deduction, but you can use the money tax-free for qualified college expenses.
- Coverdell education savings accounts have some characteristics of Section 529 plans – and a few important differences. Nondeductible annual contributions of $2,000 can be made not only for qualified college costs, but also for many K-12 expenses. Unlike 529 plans, phase-out rules prevent contributions when your income exceeds certain levels.
Paying for education
- If you’re currently paying college expenses, your tax planning should take the various available deductions and credits into account. These include the American opportunity credit, the lifetime learning credit, and the student loan interest deduction.
If you have education expenses to pay now or in the future, planning will help you take advantage of the tax breaks. Contact us for details and assistance.
Health care law survives Supreme Court challenge
On June 25, the U.S. Supreme Court issued its ruling on the controversial King v. Burwell case.
The main issue in the case was whether federal subsidies could be offered to people who purchased health insurance through the federal health insurance marketplace rather than through a state-run exchange.
Under a literal reading of the law, subsidies are allowed through exchanges “established by the state.” It was argued that the wording of the Affordable Care Act (ACA) prohibits subsidies from being granted in states that did not set up their own insurance exchange, but instead defaulted to the federal health insurance marketplace. More than half of the states use the federal exchange.
Had the Court’s decision gone the other way, an estimated six million people would have lost the subsidies that help them pay for their health insurance. However, the Supreme Court decided by a 6-3 margin that this distinction between state and federal exchanges was not the intent of Congress and ruled to preserve the right for subsidies to be offered in all states. The majority opinion was written by Chief Justice Roberts.