There might be a lot of benefits to sending your child to private school, but when you write that hefty tuition check every year, you could find yourself wondering whether those payments are tax deductible.
Unfortunately, when it comes to your U.S. federal taxes, the short answer is no. If your child attends a K-12 private school, there is no federal tax deduction or credit you qualify for that will help pay for tuition — not even school uniforms. However, once your child graduates and attends a college you're paying for, you'll start qualifying for certain education deductions. Until then, there's not much in the way of tax relief to ease your costs.
That doesn't mean you're out of luck if you need help paying for private school. Certain states — Alabama, Arizona, Florida, Georgia, Indiana, Iowa, Kansas, Louisiana, New Hampshire, Oklahoma, Pennsylvania, Rhode Island, South Carolina and Virginia — offer state tax credits to fund organizations that distribute private school tuition in the form of scholarships [source: National Conference of State Legislatures].
Corporations and individuals can also send a percentage of the state taxes they owe to these organizations as an alternative to school voucher programs. Generally, the organizations are set up to pay for low-income kids whose household income is below a certain threshold to attend private schools.
Although there are no outright tax credits for private school tuition, there is one way the IRS makes it easier to pay tuition. Parents or guardians can establish a Coverdell Education Savings Account (ESA) to help save for future education expenses without incurring taxes. A Coverdell ESA is a trust or custodial account set up exclusively for paying the designated beneficiary's education expenses. They're similar to a Roth IRA in that the money is invested into mutual funds, stocks and bonds, and both allow annual, tax-free contributions.
While you're limited to investing $2,000 a year, it's tax-free, as are your withdrawals, given you follow certain guidelines. Deposits must be cash only and can be made up until the beneficiary is 18. The money can be used until the child reaches age 30 (after that, taxes and penalties will be applied) [source: Finaid.org].
If you're interested on setting up an account for a particular child, you don't even need to be able to claim the child as a dependent. That means grandparents, uncles and aunts can still contribute to a child's education. You can even fund an existing Coverdell ESA, provided you don't exceed the annual $2,000 limit.
- Finaid.org. "Coverdell Education Savings Accounts." (Oct. 23, 2014) http://www.finaid.org/savings/coverdell.phtml
- Internal Revenue Service. "Coverdell Education Savings Accounts." June 18, 2014. (Oct. 23, 2014) http://www.irs.gov/taxtopics/tc310.html
- Internal Revenue Service. "Tax Benefits for Education: Information Center." Aug. 19, 2014. (Oct. 23, 2014) http://www.irs.gov/uac/Tax-Benefits-for-Education:-Information-Center
- National Conference of State Legislatures. "Scholarship Tax Credits." (Oct. 23, 2014) http://www.ncsl.org/research/education/school-choice-scholarship-tax-credits.aspx