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Back to school expenses may qualify for state and federal tax deductions. Also, participating in a dependent care flexible spending arrangement (FSA) plan can stretch your dollars.
If you are shopping for your loved ones for back to school, here are a few ways to turn your expenses into tax deductions.
#1 Take advantage of state tax deductions
First, make certain to keep your receipts for back to school purchases. Certain purchases may qualify for a state tax deduction. In the state of Louisiana, you may qualify for the Louisiana School Tuition and Expense deduction. This deduction allows for taxpayers to reduce their tax liability for tuition and fees paid on behalf of dependents. Also, uniform and supply purchases may also qualify. The deduction is taken when filing the annual tax return. For more information, please visit the Louisiana Department of Revenue.
#2 Participate in an FSA account
Next, consider taking advantage of a flexible spending arrangement (FSA) plan. Most companies may provide an FSA dependent care plan. This plan allows employees to set aside funds – tax free to pay for dependent care expenses. Employees can contribute up to $5,000 per year for dependents who are under the age 13 or disable. Qualified expenses include payments for daycare, after school expenses, and camps. This can really help stretch your dollars because you are essentially paying for after tax expenses with tax free dollars.
#3 Reduce your federal tax liability
Finally, keep in mind that you may also qualify for the child and dependent care credit for federal tax purposes. This credit is available for individuals who incur costs for dependent care while working or searching for work. An individual can claim up to $3,000 for one child and $6,000 for two or more individuals. Please note, the amount that you are able to claim depends on your adjusted gross income and a certain percentage of the amount you pay.
It is also important to note that if you participate in a dependent care fsa plan, you may not qualify for the child and dependent care credit. For more information, visit IRS.gov.
Remember: your choice, your future!
Kemberley Washington is a certified public accountant and author of The Ten Commandments to a Financial Healing.