Saving

Carpool Money Matters

Charging passengers for a ride to school is a good way to cover gas costs -- and the driver needn't report the money at tax time.

I enjoyed your column on how the economy works, in which you mentioned that your teenage son charges kids he drives to school a dollar a ride. It's nice to see a budding young entrepreneur. But your son should be careful. My understanding is that he is operating a for-hire transportation service. That brings a responsibility to report what he collects as income at tax time.

My son is safe, and so are the other kids at his high school who ask riders to contribute a buck a ride. The IRS ruled that payments you receive from passengers in a nonprofit carpool -- which my son's certainly is -- are considered reimbursement of expenses and should not be included in income.

Using savings bonds for college

In a recent column you answered a question from a reader who wanted to buy U.S. savings bonds to help pay for his 2-year-old son's college education. You stated that in order for interest on the bonds to be tax-free when used to pay for college expenses, the bonds must be held in the parent's name. But if the bonds are in the son's name, he can avoid taxes on the gain by using them to pay for his own college, right?

Wrong. It is possible to get the tax break if you pay your own college expenses with savings bonds held in your own name. But there's a big catch: You must be at least 24 years old when the bond is issued.

That means the 2-year-old child referred to in my column wouldn't qualify for the tax break, nor would any others who were under 24 when they purchased bonds (or when bonds were purchased for them).

In practice, that means that the only way most families can qualify for the tax break is to own bonds in the parent's name.

Parents, grandparents and other relatives who don't qualify for tax-free interest on savings bonds and seek other tax breaks on assets for college do have other options.

For example, you could give children appreciated stock to pay the bills. That way, you'll avoid capital-gains taxes at your rate, generally 15%. Instead, the kids will be taxed in their lower bracket -- generally 5%-- when they sell the stock.

To avoid gift taxes, limit gifts to $12,000 or less per child per year. A married couple can give up to $24,000 per child per year.

Most Popular

4 Big Retirement Blunders (and How to Avoid Them)
retirement

4 Big Retirement Blunders (and How to Avoid Them)

It’s too bad, but financial advisers see these four mistakes all the time. Don’t fall into the same traps.
October 6, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
The Best Vanguard Funds for 401(k) Retirement Savers
mutual funds

The Best Vanguard Funds for 401(k) Retirement Savers

Vanguard funds account for roughly a third of the 100 most popular 401(k) retirement products. We rank Vanguard's best actively managed funds, includi…
October 8, 2021

Recommended

The Pros and Cons of Target Date Funds with Tony Drake
Financial Planning

The Pros and Cons of Target Date Funds with Tony Drake

The simplicity of target date funds has made them popular, particularly among 401(k) savers. But investors may be paying a price.
October 19, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
4 Ways to Earn More From Your Rainy Day Fund
savings

4 Ways to Earn More From Your Rainy Day Fund

You should set aside enough money to cover three to six months of living expenses in case of an emergency. But sticking this cash in a savings account…
October 12, 2021
Negotiate a Better Deal
Smart Buying

Negotiate a Better Deal

For a price break on a number of products and services, all you have to do is ask. But first read up on tactics the experts use.
September 30, 2021