Over the next few weeks, I’ll be sharing tax saving strategies for you and your family and friends to fight back and keep more of your hard-earned money.As I write this, there is uncertainty about what will happen with the schedule tax increases and federal spending cuts. While federal tax planning in up in the air, there is a great strategy for state taxes.
My “Strategy of the Day” is funneling college money through an IL 529 College Savings Plan.
In an attempt to raid our wallets to pay for IL government employee salaries, unfunded pensions and countless other items, Governor Quinn and his tax friendly state congress raised our state income tax by 67% a couple of years ago. Now IL residents pay a five percent state income tax.
Strategy: If you are currently paying or saving for future college expenses, you should consider funneling the money into an IL 529 plan and then pay college expenses out of that account.
Benefit: Up to $1,000/per year in IL tax savings.
For IL residents, contributions up to $20,000 per year can be used as a state income tax deduction. The tax savings calculation is simple: multiply your contribution times five 5% ($20,000x5%=$1,000). GRANDPARENTS CAN MAKE DEDUCTIBLE CONTRIBUTIONS TOO.
Example: If you have a $10,000 tuition bill due in January, instead of writing a check from your checking account, open and deposit that money in an IL 529 Savings Plan (my clients and I use IL Bright Directions College Saving Plan). Pay the bill directly from the 529 Plan. By using this simple strategy you would get a $10,000 IL state tax deduction, saving you $500 in state taxes.
Additional Tax Benefit: Any growth of this money will not be taxed while it is in the account or when it is withdrawn for qualified college expense.
This really is a "no-brainer" if you have kids in college or are saving for future college expenses. The article links below will give you more information about the plan.