If you saved for your child’s college education using a state sponsored 529 savings plan, good for you. That was smart. But keep in mind that the benefit of the 529 plan was that the account earned money tax free until you used it to pay for qualified education expenses, and, at the time of the distribution, there was no taxable income for the amount taken so long as it did not exceed qualified education expenses incurred.
For that reason, you cannot then use the education expenses that were paid for using 529 plan dollars for the education credits. That is in effect, double dipping on the tax benefits of the two programs. For example, if your total education expenses for 2014 were $30,000 and you took a $20,000 distribution from your 529 plan, then the only amount left to be used toward education credits is$10,000.
This is a very common mistake made by people who prepare their own tax returns, and the sort of issue that will not go well for you if you are selected for an audit. Thinking “I never knew that”? There are probably many more things like this that self-preparers do not know/consider when they prepare their own returns.
Make sure you make it clear for your tax return preparer the total amount of education expenses so that they can then reduce them by the amount that is reported to you as having been taken out of a 529 plan.
Some of what you do not know will incorrectly go your way and open your risk to an audit. However, there are also other deductions and credits that you are missing out on by not building a relationship with a CPA. We do a lot more than punch some numbers into a form. A relationship with a good CPA will have more benefits that just taking the hassle of preparing your return off your hands and allowing you to sleep at night knowing that is was done accurately. We have many more skills and expertise that can make you more financially successful.
It is good to have a financial professional who knows how to budget, how to save for retirement, college and large $$ life goals, how to save on taxes, how not to spend too much on homes, refinances, etc in your circle of knowledgeable professionals. Consider building a relationship with a good CPA and I think you will see the benefits beyond not stressing over your tax returns.
Call today if you need assistance with a 2014 tax return that includes education expenses or to build a relationship with a qualified and personable CPA 303-623-2676