Tax benefits for education of grandkids
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Dear Tax Talk,
How can I deduct the cost of college for my grandkids? I have been helping them out, but never deducted any of it. I think we might help more people if we could at least get a deduction for it. Are there any tax benefits for education?
More On Tax Benefits For Education:
Your grandchildren are fortunate to have you as a grandparent who wants to help them with college. The IRS has a lot of tax benefits for education in the form of either credits or deductions, but unfortunately, unless your grandchildren are your dependents, you will not be able use them on your tax return.
However, there is something that you can do that will help with taxes, and that is to put your money into a 529 college savings plan for your grandchildren. There are two types of plans: prepaid tuition plans and savings plans. Each state has its own plan, but you are not restricted to your state’s 529 savings plan, so be sure to compare the various features of each plan.
The contributions to the plan are not deductible on your federal return, but are tax-deductible in many states. The earnings in the account are not subject to federal tax and generally aren’t subject to state tax when used for qualified education expenses of the designated beneficiary, such as tuition, fees, books and room and board. Allowed expenses even include the purchase of any computer technology or equipment and related services such as Internet access.
If you contribute to a 529 plan, there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 each year. If that is the case, there is a special rule that applies to contributions to 529 plans and the details for it are included in the instructions for Form 709 United States Gift Tax Return.
IRS Publication 970, Tax Benefits for Education is a good resource for taxpayers to guide them through the various tax benefits when paying for college or other postsecondary educational expenses.
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