1. Series EE U.S. savings bonds offer tax-saving opportunities for college expenses. The interest on the bonds is not reported for federal tax purposes until they are cashed in, and the interest may be exempt from federal tax if used for qualified college expenses.
2. To qualify for the college tax exemption with savings bonds, they must be purchased in the parent’s name or jointly with a spouse, and the proceeds must be used for tuition, fees, and other qualified expenses.
3. The tax exemption for savings bonds is phased out if the modified adjusted gross income (MAGI) exceeds certain amounts, starting at $137,800 for married joint filers and $91,850 for other filers in 2023.
4. Qualified Tuition Programs or 529 Plans allow parents to buy tuition credits or make contributions to an account for a child’s higher education expenses. Contributions are not deductible but are eligible for the annual gift tax exclusion.
5. Contributions to 529 plans can be treated as taxable gifts to the child and are eligible for the annual gift tax exclusion of $17,000 in 2023. Contributions over the annual exclusion limit can be spread out over a five-year period. – Earnings on contributions to 529 plans accumulate tax-free until the college costs are paid.
– Distributions from 529 plans are tax-free if used for qualified higher education expenses, including up to $10,000 in tuition for elementary or secondary school.
– Distributions of earnings not used for qualified higher education expenses are subject to income tax and a 10% penalty.
– Contributions of up to $2,000 per child under age 18 can be made to a Coverdell ESA.
– The right to make contributions to a Coverdell ESA begins to phase out once AGI is over $190,000 on a joint return ($95,000 for single taxpayers).
– Income in a Coverdell ESA isn’t taxed, and distributions are tax-free if spent on qualified education expenses.
– If the child doesn’t attend college, the money must be withdrawn by age 30, and any earnings will be subject to tax and a penalty.
– Unused funds can be transferred tax-free to a Coverdell ESA of another family member who hasn’t reached age 30. 1. Deadline for 2021 tax filing extended to May 17th.
2. Child tax credit increased to $3,000-$3,600 per child for 2021.
3. New tax break for workers who received unemployment benefits in 2020.
4. Small business owners can claim PPP loan forgiveness on their taxes.
5. IRS offering relief to taxpayers affected by natural disasters.
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