Getting a top-rate education in this country is extremely expensive, and it’s getting worse every year. In order to afford an education, many people rely on saving, and taking advantage of scholarships and other savings programs.
However, there is another way to save for education that’s not always top of mind for parents or students: tax breaks. There are several tax breaks available to make college and continuing education more affordable. The tax savings you should be thinking about differ whether you’re planning to get an education, receiving it now, or paying for it after.
Tax Savings while Planning for College
The biggest tax saving opportunity before going to college is contributing to a College Savings Plan – called a “529 plan.” Much like a Roth IRA for your retirement, these plans enable you to put money aside for education. This plan allows you to see your assets grow over time, and not pay any tax on the growth.
Tax Savings During College
There are three major tax breaks available while you’re receiving your education. The best option for you will depend on your specific situation, but your options are:
Also, one special trick many people don’t know about is the opportunity for the self-employed, folks like freelance designers, real estate agents, or carpenters, to write off education expenses as a business expense if the course relates to their line of work.
Tax Savings After College
There are two big opportunities for recent graduates. They can deduct the interest payments they’ve made on their student loans, and additionally deduct the expense of moving a long distance to start a new job.
One clever strategy can be to ask your new employer to defer your signing bonus, if you’re lucky enough to get one, until the next calendar year. This is because many tax deductions are income-tested, and that first year out of college is when you’ll be earning the lowest income for the foreseeable future.
This post was provided by Mitch Fox, a Tax Nerd and the Co-Founder of GoodApril, an online tax planning service. GoodApril offers a free “Tax Checkup” to help you identify actions you can take to reduce your taxes. You can follow Mitch on Twitter at @mitchellwfox or @goodapril.
Mitch was a guest on College Smart Radio “Tackling the Runaway Costs of College” on July 20th, 2013. Listen to this broadcast on YouTube here.