(Image by David Mulder via CC BY-SA 2.0 )
There is nothing cheap about going to college. Scratch that. There is nothing cheap about paying for college. It’s surprising that more people don’t ask themselves, “what are educational expenses?” in the context of what they must, and don’t have to, pay for.
You can write off educational expenses as qualifying tax breaks via tax-free funds.
For example, there are specialized higher education savings accounts that you can open via a 529 plan or retirement account.
Or, you can claim educational expenses via your tax return. As long as the funds are used to pay for educational expenses you can write them off.
To better understand educational expenses, and how you can benefit through qualifying tax breaks, we need to analyze the rising cost of tuition.
The Rising Expense of College
The average expenses that comprise, “educational expenses,” for most students, and their paying parents or grandparents, include:
- Tuition
- College dorm room and board
- Textbooks
- Educational supplies
- Transportation costs
On the average, one year of tuition at a public, in-state four-year university is $10,000. Or, about $25,600 for an out-of-state university and about $35,700 for a four-year private college.
When you add in the expenses of dorm rent and food, those costs increase to $25,300, $41,000, and $51,000 respectively.
It’s important to remember that tuition costs have steadily increased from 1987 to 2018. In 1987, for example, the average of a four-year tuition at a private college was just $15,000.
Over 45 million Americans deal with crippling student loan debt. The average student loan debt amount is about $30,000.
While this may not be a news flash, what is noteworthy is that many people don’t know that there are many legal ways for them to mitigate these costs.
For example, they can open tax-free college saving accounts or write-off qualifying educational expenses via their taxes.
Programs to Cut Down Educational Expenses
There are several programs that you can take advantage of to help with the costs of higher education. One of these is the 529 plan.
A 529 plan is essentially a financial savings plan that you open for the express purpose of paying for educational expenses.
You can open a 529 plan at most banks, credit unions, financial institutions or electronically at every official state government website.
There are even some 529 plans that are offered by academic organizations comprised of universities and private colleges.
These are tax-free funds that you can use to pay for qualifying educational expenses.
What Are Educational Expenses?
What are qualifying educational expenses via a 529 plan? These can include, but are not limited to:
- Tuition
- Room and board
- Textbooks
- Educational supplies (backpacks, pens, pencils, notebooks)
- Computers, computer equipment, and software
- Internet and WiFi service fees
- Equipment and expenses for special needs students (wheelchair, cane, transportation costs for special needs access, etc.)
There is not much else that qualifies as an educational expense, but qualifications differ from plan to plan.
What is important to keep in mind is that there are thousands of different kinds of 529 plans. No two are alike and rules for each one differs from each other.
For example, room and board are not a qualifying educational expense when you write them off via your taxes.
Never take for granted what does and doesn’t count as a qualifying educational expense. Always consult an adviser when possible.
Read More
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.