When it comes to saving for education, you aren’t limited to the 529 college savings plan. Learn about the Coverdell Education Savings Account to see if it’s right for your situation.

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You’re probably familiar with 529 college savings plans. Named for Section 529 of the Internal Revenue Code, they’re also known as qualified tuition programs, and they offer tax benefits when you save for college expenses.

But are you aware of a lesser-known cousin, established under Section 530 of the code? It’s called a Coverdell Education Savings Account and it’s been available since 1998.

The general idea of Coverdell accounts is similar to 529 plans – to provide tax incentives to encourage you to set money aside for education. However, one big difference between the two is this: Amounts you contribute to a Coverdell can be used to pay for educational costs from kindergarten through college.

Generally, you can establish a Coverdell for a child under the age of 18 – yours or someone else’s. Once the Coverdell is set up, you can make contributions of as much as $2,000 each year. That contribution limit begins to phase out when your income reaches $190,000 for joint filers and $95,000 for single filers.

Anyone, including trusts and corporations, can contribute to the account until the child turns 18. There are no age restrictions when the Coverdell is established for someone with special needs.

While your contribution is not tax-deductible, earnings within the account are tax-free as long as you use them for educational expenses or qualify for an exception. In addition, you can make a tax-free transfer of the account balance to another eligible beneficiary.

Qualified distributions from a Coverdell are tax-free when you use the money to pay for costs such as tuition, room and board, books, and computers.

Please call for information about other rules that apply to Coverdell accounts. We’ll be happy to help you decide whether establishing one makes sense for you.

#TaxTipTuesday-Do you need to file a 2016 gift tax return by April 18?

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Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.
Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

 
When filing is required
Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:
• That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
• That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
• That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
• To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
• Of future interests — such as remainder interests in a trust — regardless of the amount, or
• Of jointly held or community property.

 
When filing isn’t required
No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.
If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

 
Meeting the deadline
The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.
Have questions about gift tax and the filing requirements? Contact us to learn more.