Planning for College Expenses


In 2015, the average cost of tuition, ruom and Goard, and related expenses for one year at an in-state public fouryear college was $24,061 and nearly double that - or $47,8:31 - for a private four-year college. Given these costs, you might want to consider some tax-smart ways to help cover your child's or grandchild's expenses.

529 PlanSet Up a 529 Plan

If the child won't start college for several years, consider establishing a Section 529 qualified tuition program for him or her.

Contributions maybe invested and earnings are tax deferred and ultimately tax free when used to pay qualified education expenses.

Though such contributions count as gifts for gift tax purposes, gifts that do not exceed the annual exclusion amount ($14,000 per individual or $28,000 if rnade with a spouse in 2016) will not. t rigger any gift tax consequences. If you want to contribute more than the annual exclusion amount, you may elect tot feat the contribution as having heen made ovC'r a five-year period - effectively using five years' worth or annual exclusions to cover a gift made in one year.

Direct Payment to the School

Once a child is in cullege, you can make direct tuition payment.s to the school the child is attending without incurring gift tax. To qualify for this unlinuted gift tax exclusion, payments must be made directly to the educational institution and be made only for tuition.

Self-employed Health Insurance Deduction

When tax law requirements arc met, self-employed individuals arc allowed to deduct up to 100% of the premiums they pay to provide healt.h insurance for themselves and their families. Here are the gelleral rules.

What's Deductible?

Deductible expenses include amounts paid for medical insurance (including dental and qualified long-term care insurance) for the self-employed individual, his or her spouse, dependents, and any child who has not attained age 27 by the end of the year. Qualifying expenses include premiums only, not. out-of-pocket costs that aren't covered by insurance.

The deduction is not available for premiums paid for any calendar month in which the self-employed person is othelwise eligible to participate in a subsidized health plan maintained by all employer. The deduction cannut exceed the individual's earned income from the trade or business for which the health plan was established.

Are You Eligible?

Sole proprietors, general partners, linuted partners receiving guaranteed payments, and more-than-2% S corporation share holders receiving wages from the corporation can potentially qualify for the deduction. The health insurance plan must be established under your business. however, lRS rules do allow sole proprietors, partners, and 2% shareholders to purc:hase the policy in either their own or the business's name. (Additional requirements apply.)

Claiming the Deductions

Though it is a business expense, the deduction is not claimed on Schedule C. Instead, it is claimed on the front of Form 1040 as a favorable "above-the line" deduction - i.e., one that reduces adiusted gross income. As such, it may enable you to qualify for other tax deductions and/or credits.

Short Takes

Small Employer Health Insurance Credit Is Underutilized

The U.S. Government Accountability Office (GAO) recently reported that a relatively low percentage of eligible small employers are claiming the small employer health insurance credit. Originally established under the Affordable Care Act to encourage small employers to set up employee health insurance plans, the credit is available to eligible employers for two consecutive tax years beginning in 2014 or later. Though the GAO reported in 2012 that the number of employers estimated to be eligible to claim the credit ranged from 1.4 million to 4 million, only about 181,000 did so in 2014. Reasons suggested for the underuse include the credit's small size and complexity.


Statistics on Trends in Retiree Income

In April of this year, the Social Security Administration released Income of the Population 55 or Older, 2014, detailing trends in retirees' income. Among the findings: For people ages 62-64, 70.1% of total income came from earnings, 19% from retirement benefits (e.g., Social Security, pensions, and annuities), and 7.6% from assets. In contrast, for those 65 and older, 32.2% of income came from earnings, 54.1% from retirement benefits, and 9.7% from assets.

* Trends in college pricing 2015. The college Board, 2015

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