Weekly Tax Tips: NJ College Deductions & 529 "Superfunding"

With the September 15th Q3 estimated tax payment deadline behind us, small business owners should turn their attention to year-end tax planning. The fourth quarter is the ideal time to implement strategies that lower taxable income while addressing family and education expenses.

Here is a breakdown of three practical year-end planning options: New Jersey college tax deductions, 529 plan "superfunding," and employer adoption assistance programs.

New Jersey College Affordability Act Deductions

For business owners with children attending college, New Jersey offers tax deductions under the NJ College Affordability Act. To qualify, your household income must be under $200,000. Eligible taxpayers can claim two specific deductions on their state return:

• Tuition Deduction: You can deduct up to $10,000 for tuition paid to an in-state college or university.
• NJCLASS Loan Payment Deduction: You can deduct up to $2,500 spent on principal and interest for NJCLASS student loans.

"Superfunding" a 529 College Savings Plan

If your business had a high-revenue year, you can leverage a special IRS rule for 529 college savings plans to shift capital out of your estate tax-free. The annual gift tax exclusion is $19,000 per donor per beneficiary. Under the five-year election rule, you can front-load five years' worth of contributions at once. This means a married couple can contribute up to $190,000 into a child's 529 plan in a single tax year without incurring gift tax consequences.

Section 137 Employer Adoption Assistance

Business owners looking to support their workforce or expanding their own families can establish a Section 137 adoption assistance program. Through this qualified plan, your business can reimburse up to $17,670 in eligible adoption expenses per child. These reimbursements are provided to the employee completely tax-free.

What to Do Next

Year-end planning requires evaluating how state and federal tax rules align with your financial situation. To review whether you qualify for New Jersey tuition deductions or to structure a 529 superfunding strategy before December 31, contact Andrew Chen, CPA at (908) 660-0090 or email Andy@andrewchencpa.com to schedule a consultation.