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12/18/2018

Can I Deduct Children's School Tuition?
The IRS limits tuition deductions to college students.
The IRS limits tuition deductions to college students.

More Articles
1. Are Tax-Free Education Accounts Right for You?
2. Are Contributions to a 529 Plan Tax Deductible?
3. Can Both Dependents & Parents Write Off Tuition on Federal Taxes?
If you have a child in private school, those tuition expenses can quickly add up. You may be wondering whether there's a way to get some of those tuition expenses covered through deductions on your tax return.


Tip
There's no federal private school tuition tax deduction, though some states do offer state tax relief for parents paying tuition. You can also, as of 2018, use a 529 plan for private school, and there are other tax benefits for college tuition, some after-school programs and medically necessary therapeutic schools.

Your Private School Bill and Your Taxes
Ordinarily, if you are paying a private school tuition bill, you can't get a federal tax credit or deduction for that money.

Some states, however, do offer tax rebates or other programs to help parents pay for private school tuition, though these programs may be limited to students with family incomes below a certain threshold, students with disabilities or students who'd otherwise attend poorly performing public schools. Check with your state or school district to see what programs are available.

Additionally, if your child attends preschool or some after-school programs, you may be eligible for a tax benefit through the Child and Dependent Care tax credit. This generally covers up to $3,000 for one child, or up to $6,000 for two or more children, to receive care while you work or you seek work. Use IRS Form 2441 to claim the credit on your taxes.

If your child moves from high school to college or vocational school, there are also a variety of programs letting you take tax credits and deductions to cover tuition and other expenses. The American Opportunity tax credit and Lifetime Learning credit can both offer tax relief if you or a spouse or dependent is attending a postsecondary school. Use IRS Form 8863 to see which of these credits you can receive and file for them.

There is also a separate tuition and fees deduction that can reduce your taxable income by up to $4,000 based on tuition and fees for college and vocational school depending on your income and college expenses for you, your spouse or dependents. You can take this deduction even if you don't itemize, but you can't take it if you also claim one of the college tuition credits.

Exceptions for Therapeutic Schools
In some cases, if your child has a disability, you may also be able to claim a specialized school as a medical expense. Generally, the disability must be diagnosed by a physician and the school must be offering a program to treat the disability or otherwise help the child with it.

The deduction for medical and dental expenses is limited to expenses for yourself, your spouse and your dependents that exceed 7.5 percent of your adjusted gross income, and you must itemize your deductions to claim medical expenses. That means that depending on your other expenses and deductions, you may not benefit from this deduction even if your child attends a medically necessary school.

2018 Tax Law Changes and 529 Plans
As of tax year 2018, you can use 529 plans to pay for elementary and secondary tuition as well as college tuition. These plans generally allow you to save money for yourself or a loved one. You pay federal tax on money you put into the plan, but not on the interest and other income it earns while invested. Many states also offer additional tax incentives for using the plans.

Since the money grows without interest, many people opt to keep money in the plans as long as possible, so they may prefer to hold on to funds in the plans for college tuition rather than use them for elementary or high school payments if they can afford to do so. You can generally withdraw up to $10,000 per student per year for elementary and high school tuition.

2017 Tax Law
Under 2017 tax law, you can't use 529 plans for elementary and secondary education.

On the other hand, the standard deduction is lower in 2017 than in 2018, which may make it worthwhile to itemize and claim medical deductions for therapeutic schools in cases where it would not be as of 2018. In 2017, the standard deduction is $6,350 for a single filer and $12,700 for a married couple filing jointly, while in 2018 these numbers rise to $12,000 for single filers and $24,000 for married couples filing jointly.

11/08/2018

How Will Tax Reform Affect My Refund Next Year?

We know that you work hard for your money and often a tax refund may be the biggest check you get all year, so we’re here to let you know how the new tax reform legislation may affect your tax refund next year.

The new tax law is the largest piece of tax reform legislation in 30 years and was signed into law on December 22, 2017. For most people, these tax changes impact tax year 2018 (the taxes you file in 2019) and not tax year 2017 returns. Overall, the changes associated with the new tax law may lower taxes for individuals and small businesses.

Some of the highlights for taxpayers include:

Lower individual tax rates
Increased standard deduction
Increased child tax credit
Elimination of dependent and personal exemptions
Elimination of some itemized deductions
$10,000 cap on the deduction for state income taxes, sales, and local taxes, and property taxes combined
20% deduction for “pass-through” entities (sole proprietorship, partnership, S corp.)
Increased expense limits for capital assets
So just what will these changes mean for your 2018 tax refund? Here is a break down based on your individual tax situation.

A Family with Kids
Although there was an elimination of the dependent exemption deduction beginning for tax year 2018, families with kids may see a bigger tax refund next year since the child tax credit doubled and went from $1,000 to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The law also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000. Tax credits are a direct reduction from the taxes you owe so they mean more than a deduction that reduces taxable income.

Claims the Standard Deduction
If you normally claim the standard deduction you may see less tax liability in 2018 since the new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly will see an increase from $12,700 to $24,000. These increases mean that fewer people will itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Claims Itemized Deductions
If you claim itemized deductions you may see fewer tax deductions that lower your tax liability especially if you live in a state with high property taxes since the new law limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible.

The law also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

If you itemize you will also see the elimination of some miscellaneous itemized deductions like unreimbursed employee expenses under the new law.

Self-Employed, S Corps, and Partnerships
If you are self-employed or have an S-Corp or partnership you may see lower tax liability which may increase your refund since the new law includes a 20% qualified business income deduction for incomes from certain type of “pass-through” entities and almost doubles the amount small businesses can expense when they purchase business equipment from the 2017 Section 179 amount of $510,000 to $1,000,000.

What do you need to do?
Because of the changes to the 2018 tax laws such as changes to itemized deductions, increased child tax credit to $2,000, the new dependent credit, and the eliminations of dependent and personal exemptions, you should file a new Form W-4 with your employer in response to the new tax law, if your personal situations changed, or if you started a new job.