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Like
most parents, you probably
panic when you hear that a four-year college education could
cost more than $100,000 by the time your children enroll. But
Uncle Sam got more generous with college tax breaks in tax
laws passed in recent years.
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Here are Two
Changes
to Help You Save:
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1. Coverdell
Education Savings Accounts (formerly known as Education
IRAs). In the
past, many people ignored these accounts
because the annual contributions were limited to a measly $500
and there were other limitations. But as of 2002, several
changes have made the accounts more attractive. For
example:
 The maximum annual contribution is
now $2,000.
The contribution date is extended to April
15th of the following tax year. (Previously
the deadline was December 31 of the tax year.)
The income phase-out range for taxpayers
filing joint returns is between $190,000 and $220,000
(double the range for single filers), which made the tax
break available to more parents.
You can make tax-free distributions from
a Coverdell Education Savings Account in the same year
that you claim Hope or Lifetime Learning tax
credits.
And in a surprising move, the law was
extended to let you apply Coverdell accounts to public
and private school expenses for kindergarten through twelfth
grade.
2.
College tuition
deduction. You
might be able to deduct qualified higher education expenses of
up to $2,000 or $4,000 (depending on your income) paid on
behalf of yourself, your spouse, or a dependent. The
write-off is taken as an adjustment to income, which means
taxpayers can claim it even if they do not itemize deductions.
It can be advantageous for those who earn too much to claim
the HOPE or Lifetime Learning tax credits because the income
limits are higher. Previously set to expire, the Tax
Relief and Health Care Act of 2006 extends
this deduction through December 31, 2007.
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 Caveat:
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can't take the deduction in the same year you claim the Hope
or Lifetime Learning credit for the same student.
In
addition to these tax breaks, you may also want to take
advantage of Section 529 plans. These plans are set up by
states and often managed by professional investment
firms. You don't get a tax deduction for contributions to
these plans but the earnings are allowed to grow tax-free
until the funds are withdrawn to pay for qualified education
expenses.
Give Ronald J.
Cappuccio, J.D., LL.M. (Tax) a call at
(856) 665-2121 to
talk about the best way to save for college.
Continuing Education
Deductions.  | 
