Tax Advantaged College Strategies

Luxury tax space on Monopoly boardOften times, college planning entails helping a family increase their opportunity to qualify for financial aid.  But what can be done for families who will likely NOT qualify for financial aid, given their income level and/or countable assets?

Parents who are small business owners have additional college funding tools available to them that other families don’t have.  Implementing a tax-advantaged college plan can help these families fund college education for their children in a way that reduces their overall income taxes.

The purpose of tax-advantaged planning is to increase family funds available for future college costs by reducing taxation.  In other words, every dollar saved on taxes is a dollar in your pocket that can then be put towards future college costs.  In tax-advantaged college planning, income and assets are better off in the student’s name.  This is different from aid-advantaged planning, where income and assets are better off in the parents’ name.  It is critical to know whether or not you will qualify for financial aid, so you know which strategy (tax-advantaged or aid-advantaged) to implement.

In the United States, we are subject to a progressive tax system, meaning the tax rate increases as taxable income increases.  This type of tax system is designed to reduce taxes for those with a lower ability to pay them and conversely, to increase taxes for those with a higher ability to pay.  However, the progressive nature of this system leaves the door open for “income shifting” – a strategy of moving a person’s income from a higher income tax bracket to a lower one.

Unfortunately, a taxpayer does not have unlimited ability to shift income and/or assets because the IRS has implemented Gift Tax limits and Kiddie Tax rules in order to limit such shifts.

A Tax Advantage College Strategies (TACS) analysis shows you how to shift income from the parents to the student within these constraints and within the student’s Tax Capacity.

Jodi Eramo, CPA, CCPRS with College Planning Relief® has partnered with Westface College Planning to develop “Tax-Advantaged College Strategies” (TACS): an analysis aimed specifically toward families who will likely not qualify for “need-based” financial aid.  Even for these families, a TACS analysis will typically add $5k – $8k to their children’s college funding.

Contact Westface College Planning for your TACS analysis and to learn more about college financial planning.

Jodi Eramo was a guest on College Smart Radio “Tackling the Runaway Costs of College” on February 22nd, 2014 where we discussed Tax Advantaged College Strategies.  Listen to this broadcast on YouTube here.

Photo Credit: Philip Taylor

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