Friday, August 04, 2006

Indiana Tax Planning change due to a new State Law

Starting on 1/1/2007 Indiana residents have a new tax credit they may be able to claim on their Indiana taxes.

A tax credit lowers your tax liability by the amount of the actual tax credit...

If you contribute to an Indiana Choice 529 plan for education you can claim a tax credit in 2007 from Indiana. This tax credit cannot be carried back to a prior year nor can it be used in a future year.

The amount of the credit is limited to the LESSER of the following:
1. 20% of the amount of each contribution made to the plan during the taxable year.
2. $1000. OR
3. Taxpayer's adjusted gross income tax liability for the taxable year reduced by credits allowed under IC 6-3-1 through IC 6-3-7.

Here is an example of how this could help you:

Lets say you are married, file joint, and have an Indiana adjusted gross income of $50,000 per year after all other Indiana tax credits, Indiana tax deductions, and Indiana exemptions are calculated. This means you will have an Indiana tax liability of $1700 (3.4% x 50,000).

Lets say that you contribute $2500 during 2007 to an Indiana Choice 529 plan to help put one of your children through college. This will yield a tax credit of $500 ($2500 x 20%).

This means you will have an Indiana tax liability of $1200 rather then $1700...

If you have any questions about this please contact me...

P.S. This could work for Grand parents and the like as well...

Mike Sylvester

1 comment:

Anonymous said...

Mike - are there any holding periods for the money in the 529? For example, could I contribute $5000 on January 2, withdrawal the money for qualified expenses on January 13, and still get the $1000 credit? Or do the funds have to be in the account on a particular day, say Dec 31, or for a specified length of time?

Mark