Article Date:
July 2009


Word Count:
1652

 

 

Federal Tax Deductions with Section 127 Plan for Child’s College Education


Here’s an advantage to being in business for yourself: Create a tax-favored educational assistance program. Hire your child age 21 or older. Grant the education program to all your employees, including your employee-child. Now, you may deduct up to $5,250 of your employee-child’s college tuition and book fees. The $5,250 is the annual, per-employee limit on Section 127 educational assistance.1

 

To create the benefit, you need a plan. Good planning can make this benefit well worth the effort.

 

To put the plan in place, your child must be

 

·

age 21 or older,

·

a legitimate employee of your business,

·

not a more-than-5-percent owner of your business, and

·

not your dependent.

 

The Age-21-or-Older Rule

 

The age-21-or-older rule is buried in the “attribution” rules that apply to this educational assistance plan. Under the attribution rules, children under the age of 21 are deemed to own the same percentage of the business as do their parents.2

 

This rule is important. The law does not allow a Section ... Log in to view full article.

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