As the new school year approaches, parents in Asheboro and across North Carolina are busy preparing their children for success. While you’re shopping for school supplies and new clothes, don’t forget about the potential tax benefits associated with education expenses. Gibson Tax LLC is here to help you navigate both North Carolina and federal tax regulations to maximize your savings.
Education-Related Tax Benefits
The federal government offers valuable tax credits to offset education costs. The American Opportunity Tax Credit (AOTC) provides up to $2,500 per eligible student for the first four years of higher education. The Lifetime Learning Credit offers up to $2,000 per tax return for qualified expenses.
While North Carolina doesn’t have state-specific education tax credits, residents can benefit from these federal credits. NC follows federal guidelines for most education-related tax benefits, simplifying the process for families.
Saving with the NC 529 Plan
The North Carolina National College Savings Program (NC 529 Plan) is a powerful tool for education savings. Contributions grow tax-free when used for qualified expenses. Although NC doesn’t offer a state income tax deduction for contributions, the earnings are free from both federal and state tax when used properly.
For example, if you contribute $200 monthly from your child’s birth until age 18, assuming a 6% annual return, you could accumulate over $68,000 tax-free for education expenses.
Flexibility and Benefits
Recent changes allow 529 plans to be used for K-12 tuition (up to $10,000 annually) as well as college expenses. If your child receives a scholarship or doesn’t pursue higher education, you can change the beneficiary to another family member or use the funds for yourself.
North Carolina Considerations
While NC doesn’t offer a state tax deduction for 529 contributions, the tax-free growth provides significant long-term savings. Consider the NC 529 Plan for its in-state benefits and competitive investment options.
As you prepare for the school year, remember that proper tax planning can lead to substantial savings. Consider your income, children’s ages, and overall financial goals when creating your education savings strategy.
Child and Depend Care Credit
And last, parents who will need after-school child care, you may be able to qualify for the child and dependent care tax credit. This tax credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work. Be sure to see if you qualify for this federal credit.
Our Asheboro-based accounting firm specializes in both North Carolina and federal tax regulations. We’re here to help you navigate these options and maximize your education-related tax benefits. By understanding and utilizing these advantages, you can potentially save thousands while investing in your child’s future.
Contact us today to schedule a consultation and ensure you’re making the most of your education savings opportunities.
