tuition deduction/credit and 529


P

ps56k

We've reached the point where our son - a junior at UW/Madison -
has enough in his 529 account to take care of all his remaining college
expenses.
From a deduction/credit standpoint on OUR taxes,
I noticed that even when I was paying all the college bills,
that only $4,000 was allowed as a deduction,
and I think TurboTax chose the "credit" vs "deduction".

SO - I was thinking that I still would "pay" $4,000 toward our son's college
expenses,
and let his 529 account pick up the remaining costs...

Does this make sense ?
 
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R

removeps-groups

We've reached the point where our son - a junior at UW/Madison -
has enough in his 529 account to take care of all his remaining college
expenses.

I noticed that even when I was paying all the college bills,
that only $4,000 was allowed as a deduction,
and I think TurboTax chose the "credit" vs "deduction".

SO - I was thinking that I still would "pay" $4,000 toward our son's
college expenses,
and let his 529 account pick up the remaining costs...

Does this make sense ?
Did he or you pay all of the college costs with the 529 plan? Does he plan
to file his own tax return or will he be a dependent on your return?

Note that a taxpayer can take either the AOC, lifetime learning credit, or
tuition and fees deduction. They all yield different reductions in the net
tax. But one can only take these for amounts paid out of pocket, and not
from a 529 plan. Also there is a rule that anything paid by you or by your
dependent out of pocket can be considered to be paid by him or you: if he
files his own tax return then the amounts paid will be considered paid by
him even if you paid it, so that he can take the AOC or lifetime learning
credit. I don't know if this transferrability applies to the tuition and
fees deduction, but his income is likely very small and possibly zero so
this deduction is not likely to be worth much anyway.
 
P

ps56k

removeps-groups said:
Did he or you pay all of the college costs with the 529 plan?
Does he plan to file his own tax return or will he be a dependent on your
return?

Note that a taxpayer can take either the AOC, lifetime learning credit, or
tuition and fees deduction. They all yield different reductions in the
net tax. But one can only take these for amounts paid out of pocket, and
not from a 529 plan. Also there is a rule that anything paid by you or by
your dependent out of pocket can be considered to be paid by him or you:
if he files his own tax return then the amounts paid will be considered
paid by him even if you paid it, so that he can take the AOC or lifetime
learning credit. I don't know if this transferrability applies to the
tuition and fees deduction, but his income is likely very small and
possibly zero so this deduction is not likely to be worth much anyway.
--
I will pay $4k directly toward the college expenses.
The 529 has not be used until this last fall - paid out $11k

Our TurboTax for last year's filing chose the AOC.

So, for this year year, for 2012 taxes,
I was again looking at the $4k expense on the 8863 for the AOC.

Then, for his 1040 return,
see how TurbotTax handles the 529 payout for the first time.

He has filed for several years, since his Schwab account yields divs..
 
P

ps56k

BTW - what are the issues involved, if any,
for going beyond the usual 4yrs of college,
with regard to any of the IRS tax, deductions, & credit issues ?

Also - anything related to withdrawals from the 529 plan ?
 
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B

Bob Sandler

BTW - what are the issues involved, if any,
for going beyond the usual 4yrs of college,
with regard to any of the IRS tax, deductions, & credit issues ?
The American Opportunity Credit (AOC) can only be used for 4
tax years for any one student. Any years that you used the
Hope Credit for your son count against the 4-year limit for
the AOC.

There is no limit on the number of years that the Lifetime
Learning Credit and the Tuition and Fees Deduction can be
used. However, as of now, the Tuition and Fees Deduction
expires at the end of 2013. There is no guarantee that it
would be extended beyond that.

Bob Sandler
 

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