As you start scheduling tutoring, therapies and enrolling in private schools this year, you may be thinking about how quickly all the expenses are adding up this year. The truth is that remediating your son or daughter’s dyslexia is not cheap. Did you know that you can be reimbursed for some of your child’s dyslexia educational expenses?
Disclaimer: The information provided in this episode is for informational purposes only and is not legal or tax advice. You should consult your CPA for tax advice for your individual financial needs.
I am finding more and more families who are not aware of a few ways to save money on educational expenses. In some instances, thousands of dollars.
3 Ways to Save Money on Educational Expenses
- Flexible Savings Account (FSA) / Health Savings Account (HSA) – You may be eligible for reimbursement for tuition for special needs schooling. Most companies will require a letter from your child’s doctor called a letter of medical necessity to be eligible for reimbursement. Be sure to check with your FSA/HSA for requirements. Your HSA/FSA is a pre-tax benefit.
- 529 Plan – Most people are familiar with 529 plans for saving money for college expenses. But did you know that can also use your child’s 529 plan for K-12 private school tuition? A 529 plan allows parents to save for college by growing the savings free from federal taxes and in some states, from state taxes. To learn more about 529 plans, check out the Best 529 College Savings Plans by State. A few important details about 529 plans:
- Investments within the 529 Plan can grow tax free.
- Withdrawals from a 529 plan used to pay eligible expenses are not subject to federal income tax.
- You may spend up to $10,000 per student annually on eligible expenses. Tuition, fees, books, and related tech expenses are considered to be eligible expenses. (This limit is for K-12 schools. There is no limit for eligible college expenses.)
- Anyone can open a 529 plan for another person.
- There are no income restrictions that apply to the contributor or the beneficiary.
- You may choose to buy a 529 plan in another state, so compare 529 plans carefully.
- The Georgia Path2College 529 plan has no annual contribution limit.
- The maximum account balance cannot be more than $235,000 for the same beneficiary.
- Georgia taxpayers may deduct contributions from their state income tax return up to $4,000 per beneficiary per year if married and filing jointly, or $2,000 per beneficiary per year if filing single.
- Contributions made by the tax deduction deadline (typically April 15) are eligible for a deduction on the preceding year’s tax return.
- Estate Tax Planning Benefits: There’s another tax advantage unique to the 529 plan. There’s no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers. There’s even an option to gift amounts up to $75,000 for single filers and up to $150,000 for married filers if prorated over five years. This means you could make a one-time gift equivalent to the five-year amount and it could all qualify for the federal gift tax exclusion.
- Federal Tax Deduction. The IRS allows parents of children with disabilities to deduct the costs associated with special education as medical expenses. The IRS recognizes dyslexia and ADHD as medical conditions that interfere with a child’s ability to learn. With a recommendation from your child’s doctor, you may be able to deduct some educational expenses as medical expenses. What type of educational expenses?
What type of educational expenses?
There are a few types of educational expenses you can ask your tax advisor: cost of a qualified tutor, tuition for a special school for dyslexia, school-related transportation, lodging, and meals, cost of consultations, evaluations, and other forms of mental health treatment.
The school must address what the IRS considers as a medically diagnosed learning disability, but not one that addresses behavior problems. The “medical care” provided by the school must be the parent’s main reason for enrolling their child to claim the deduction.
For more information, here is an article by NerdWallet – Can You Claim Medical Expenses on Your Taxes This Year?
Medical (Educational) Expense Example
Your medical expenses must exceed 7.5% of your adjusted gross income. You can add these expenses in with your regular medical expenses.
For an individual’s 2021 tax returns, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2020 adjusted gross income. So if your adjusted gross income is $40,000, anything beyond the first $3,000 of medical bills (or 7.5% of your AGI) could be deductible. That means if you had $10,000 in medical bills, $7,000 of them could be deductible.
As it comes to paying for dyslexia educational expenses, you have 3 options to save thousands of dollars: (1) Flexible Savings Account (FSA) / Health Savings Account (HSA) (2) 529 Plan, and (3) federal tax deduction. Be sure to reach out to your health insurance provider too, there may be some expenses like speech therapy that may be covered.
You should consult your CPA for tax advice for your financial needs.
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