Paying Yeshiva Tuitions

Financial Advisor · Guest

I'm not an accountant, and won't pretend to be one, but, to the best of my knowledge, while paying someone else's yeshiva tuition is not illegal, it is illegal to do that as a scam to take it as a tax writeoff. Another illegal way of reducing the pay-load that many people do is work second jobs and have them make their check out directly to their children's yeshiva. This allows tax free money to be spent on the yeshiva tuition, but it is a scam and can be prosecuted, to the best of my knowledge, by the IRS. If an accountant can confirm this, it would be most appreciated.

As mentioned earlier in the post, the Coverdell will allow for some of the cost to be used from tax free money. Many states, although not NY, allow 529's to be used for private schooling (k-12).

There is no easy way to pay for yeshiva tuition. The best we can do is manage our other expenses in a most efficient way, invest smartly, and hope that our investment in our children pays dividends. You can also protect yourself and your children by purchasing life insurance and disability insurance, to make sure that you will have an income in case of terrible eventualities.

EDYankCPA · Guest

Absolutely cannot take a charitable tax deduction for swapping tuition payments with another individual.

If you run your own business, you may be able to deduct the cost of the advertising for the journal that most schools require.

Also, although it doesn't amount to much, you can generally deduct the annual dinner fee to the school as a charitable donation. However, if you actually attend the dinner and receive a benefit (i.e. the food) you would need to reduce the amount of the deduction by the value of the benefit received.

Self-employed individuals and those with their own business have the best method for saving for the children's tuition. Besides for the Coverdall and 529 Plans, they can pay their children a salary (a reasonable amount for actual work performed such as a summer job or for after school) and then have the child contribute to a Roth IRA.

By contributing $3,000 to a Roth, the Business can save $1,050 in tax (assuming 35% tax rate). Assuming the child has no other earned income, he/she will pay no tax at all.

Furthermore after 10 years of savings, the child can have a piggy bank with almost $50,000 of savings in just contributions alone. ($3,000 contribution in 2004, $4,000 in 2005 and 2006, and $5,000 thereafter).
These contributions can be withdrawn income tax free and used for anything (i.e. tuition, wedding, downpayment for home purchase).

All earnings must remain in the account until they reach retirement age and can then be withdrawn tax free.

You not only get tax free savings for the near term (10 to 20 years) but also help start your child on their retirment savings!

If you are interested in getting some help to set this up or for guidance with other tax or financial planning matters, send me an e-mail to EDYankCPA@aol.com, breifly listing what you are looking to accomplish and I will get in touch with you as soon as possible.

heshy · Star Poster Joined: Sep 06, 2002 Posts: 59

EDYankCPA · Guest

The business saves because it now has a $3,000 deduction that it didn't have before. This reduces their taxable income by $3,000.

The child will not have to pay any tax on this $3,000 (as long as his total earned income is below a threshhold).

Yes. Anyone who funds a Roth can withdraw their contributions without any tax or penalty after it has been established for at least 5 years.

hr objection · Guest

In the advice to say your business is employing your son/daughter, I have a few objections:

1. We must be talking about children at least above 14.
2. Both the employer and the minor must pay taxes on this money, around 10% for the minor and 10% for the employer.
3. Wouldn't it be better for the minor to get a real, outside job in which case s/he brings in new income versus revolving door money?

EDYankCPA · Guest

I will answer your objections in reverse order:

3. Absolutely. If they can get a job elswhere and get paid, they are better off since they will only be adding funds to the total family wealth instead of just shifting it from parent to child.

2. As far as taxes go, you won't have any federal or state withholdings because the minor will be below the tax threshhold.

Which brings me back to number

1. As long as you are employing your own child AND they are actually doing work for you (i.e. copying, shredding, filing, etc...) not only are you permitted to employ them even though they are uner 14 years old, but you also get the extra benefit of not having to pay any social security taxes either!

YeshivaBoy · Guest

Hi every1. It depends what Yeshiva tou need to pay... Some Yeshiva s don't ask allot, I know a Yeshiva that is practiccaly free. Another Yeshiva take 10.000 dollars per Yeshiva year. Southbend Yeshiva doesns' take that much. Passaic Yeshiva takes millions. Usually theYeshiva s who have allot take even more money... But thats the sad Yeshiva world nowadays. So dont send you kid to Yeshiva . It wont be any big loss for your son... Not every1 is made for Yeshiva
all the best Yeshiva Boy

ShlomoR-PE · Posted: Mon Jul 05, 2004 1:13 pm Post subject:

In response to the post above that suggests employing your children, no, the children do not have to be above 14, but they must be reasonably able to do some work of value, which practically speaking means that this strategy can begin at about 7 years of age. However, they can be paid more than $3,000 - but you must check with a good CPA, as there is a threshold beyond which the child will be taxed at the parents tax rate. Depending how much the parent is making, having the child work outside and bring in more money may not be beneficial, as it could conceivably close the window for tax savings.

jewcentral · Site Admin Joined: Oct 31, 2002 Posts: 74

FYI, we have consolidated yeshiva tuition articles, links and forum posts in our new School Tuition section.

We will be adding more content, so check back often.