Tax Savings Help Those School Days
School will be here before you know it. For many, images of dollar signs fill their heads – tuition, clothes, supplies, book bags … the list seems endless, and the costs pack quite a punch! While we can’t diminish the list of must-have items every student needs for school (84 sharpened #2 pencils ̶ what is up with that?), we can point you in the direction of some school-related tax savings that might help combat the hit to your wallet.
Beginning in 2019, the state of Ohio will have a permanent sales tax holiday on the first Friday, Saturday and Sunday of August every year. This year, it begins on Friday, August 2, at midnight and end on Sunday, August 4, at 11:59 p.m.
During this annual tax-free holiday, the following school-related items are exempt from all sales and use tax:
- Any item of clothing priced at $75 or less
- Any school supply items priced at $20 or less
- Any school instructional materials priced at $20 or less
This sales tax holiday does not include items used for trade or business. Find more information about the sales tax holiday on the Ohio Department of Taxation website.
Listen to episode 186, “State Taxation Overkill,” on Rea’s award-winning podcast, unsuitable on Rea Radio, featuring Joe Popp, a principal who heads Rea’s state and local tax team
While the tax holiday is a great way to save on school-related taxes, it isn’t the only game in town. For those who contribute to an Ohio 529 plan, there are significant tax benefits to be had for those saving for college.
The 529 savings plan helps anyone save money for college expenses in a tax-deductible account. Any 529 earnings are not subject to federal income taxes, and all withdrawals used for qualified higher education expenses are exempt from federal and state income taxes. Plus, you can deduct any 529 contributions from Ohio taxes each year when you file – up to $4,000 of contribution per beneficiary, per year. Ohio is one of the top states for college savings plans, so there is much to gain by taking advantage of this program.
With these plans, anyone can contribute to a child’s college fund and receive a tax benefit as well. Between the regular contributions and compound interest, the plan can really grow to help with a child’s educational expenses. Ohio offers two 529 Savings Plan options. To find out more, visit the Ohio 529 College Advantage website.
Since we are talking high learning, we might as well mention the tax-saving education credits and deductions that are also available after the high school years:
- The American Opportunity Credit – claim up to $2,500 of college expenses an eligible student for their first four years of post-secondary education. Expenses include tuition, fees, textbooks, supplies and other equipment.
- The Lifetime Learning Credit – claim a credit of up to $2,000 for qualified education expenses. There is no limit to the number of years you can claim this credit, but you can’t claim this and the American Opportunity Credit at the same time.
- Student Loan Interest Deduction – can be claimed for payments on a qualified student loan (usually after you graduate). With this deduction, taxpayers can reduce their amount of income subject to tax by up to $2,500. Learn more about this and other education-related deductions at the IRS Tax Benefits for Education: Information Center.
So while the beginning of school may take its toll on your pocketbook, the smart parent knows where the tax-savings are – and takes advantage of them. If you have any questions about these or other tax savings to take advantage of, give us a call. We’d be happy to school you!
by Lisa Beamer, CPA (New Philadelphia)