1 TAX DEDUCTIONS, CREDITS, AND TUITION/FEE DEDUCTION
2 Introduction Tax Credit vs. Deduction There are 3 ways a taxpayer can deduct educational costs Tax Credits American Opportunity Tax Credit (a.k.a. Hope Credit) or Lifetime Learning Credit Tuition and fee deductions Itemized deductions unreimbursed business expenses Fairly recent Court Cases Miscellaneous
3 Tax Credit vs. Deduction A tax credit will reduce tax liability dollar for dollar A tax deduction will lower taxable income
4 3 ways a taxpayer can deduct education costs Tax credits (American Opportunity Tax Credit a.k.a. a Hope Credit or Lifetime Learning) Qualified tuition costs can be used to compute tuition tax credits. A tax credit is a direct reduction of tax liability. Tuition and fee deduction (Flat $4K deduction) Qualified costs s are deductible e from gross income subject to limitations. Itemized deduction of entire tuition (unreimbursed business expense) Qualified MBA tuition costs may be deductible from your personal income taxes as unreimbursed costs on form 1040 Schedule A Line 23. A tax deduction d reduces taxable income.
5 Tax Credits (first method) American Opportunity Tax Credit (a.k.a. a Hope Credit) Max credit is $2,500 per student for the first student and 25% of the next $2,000 for each additional student Usually for undergraduates
6 Tax Credits, con t. Lifetime Learning Credit For graduate school and professional degrees Up to 20% of the first $10,000 in allowable costs or $2,000 Only allowable for taxpayers with income less than $60K and double for those married (if married, must file jointly to claim the credit)
7 Tax Credits, con t. Columbia University will issue a 1098-T form in February for all students. Credits are claimed on Form 8863 To retrieve your 1098T, go to For any issues, call Karen at option 9. You will need to log in with your SS# or Columbia ID C# and Date of Birth Student loans are deemed as payments to an institution by a taxpayer in the year of borrowing Due to the fact that they are almost impossible to discharge Case Lockhart vs. US affirmed unanimously by Supreme Court (12/05) that Social Security benefits can be garnished (67 year old and disabled d 15%).
8 Tuition & Fees Income Deduction (second method) Above the Line deduction to arrive at AGI (adjusted gross income) Maximum allowable deduction is $4,000 for taxpayers with AGI less than $65K Allowable deduction reduced to $2,000 when AGI exceeds $65K but less than $80K Incomes are doubled d for married filing jointly No tuition & fees deduction is permitted if the Lifetime Learning or Hope credit is taken (pick one!) Reported on Line 34 of Form 1040 Page 1 with supporting form 8917
9 Student Loan Interest Income Deduction Amounts must be paid and NOT accrued in order to take deduction Maximum allowable deduction from income - $2,500 per year Allowable deduction reduced when income exceeds $60K and eliminated at $75K Reported on Line 33 of Form 1040 Page 1
10 Claiming MBA costs as unreimbursed business expenses (third method) Non-deductible costs are those that qualify an individual for a new trade or business You must be in the field already. A change of duties is not a new trade or business if the new duties and the taxpayer s employment involve the same general work. The MBA must improve your skills The MBA must be the expressed requirement of employer or law/regulations Self-employed individuals unless you have been actively engaged as a self-employed individual, you must not attempt to deduct d educations costs on Schedule C (profit/loss from business). The IRS generally challenges MBA program deductions due to generality of courseload more and more people p are being audited!! Cases are being sent to tax court and students are using any savings toward legal fees!
11 Claiming MBA costs as unreimbursed business expenses (con t) We know many of you have questions regarding whether or not you can claim tuition expenses as a unreimbursed business expense. Deducting your tuition expenses as an MBA is risky. You may have solid business reasoning behind claiming the deduction. However, if the IRS audits you may have to pay back taxes, plus interest and penalties. You may have read the article in the Journal where a University of Phoenix graduate won in her case against the IRS. Please keep in mind this woman went to school part- time (on the internet) and stayed working in the same field throughout the process. It is generally understood that those people who receive an MBA have an eye on a new trade, or job, and that disqualifies you for the deduction.
12 Claiming MBA costs as unreimbursed business expenses (con t) The Court enforces a commonsense approach. Under this standard, if the education qualifies the individual to perform significantly different tasks and activities than previously, the education qualifies the individual for a new trade or business. It does not matter if you enter into a position after your MBA in which you are performing tasks different than your prior job, but rather, are you qualified to perform different tasks? An MBA may have no intention or desire to move into another position with significantly different tasks and activities, the point is that the Court believes that the MBA label qualifies him/her to do significantly new things and to move on to a significantly new job. In IRS audits, they will literally go through your class schedule, dissect what skills you have acquired and how they are relevant to your current position. For example, you may not need that Marketing course, and you may not ever use a Break-even analysis or a Lifetime Value analysis, but the fact is that you are now qualified for a Marketing position, and therefore, you may not deduct the expenses so please research this thoroughly before taking the deduction.
13 Court Cases/Citations Galligan Law Librarian Lewis Telecommunications Exec Per Lewis, he was called upon to negotiate increasingly complex contracts for a variety of clients. The tax court ruled that this was not specific enough. Lewis became eligible for a new trade/business Zheng Overall improvement in skill level. No deduction Weyts Columbia JD/MBA student Summer Associate in employee directory Unable to prove same pay scale as full-time Not assigned the same work Earned three credits Court denied deduction by stating that the petitioner had an uninterrupted continuity in his legal education. Singleton-Clarke vs. U.S. the recent case. Tax court summary opinion Deduction granted. It is necessary to break the education cycle and engage in a trade/business before deducting educational expenses. The fact that the break is only for a short period of time will not necessarily deny the deduction. An actual break must occur!
14 Miscellaneous Items Education Assistance Programs from Employers Up to $5,250 received by an employee for qualified educational expenses may be excluded from gross income under and EAP See publication 15-B pages 7-8 Forgiveness of Debt Pursuant to certain student loan agreements, if timely payments are made, a percentage of loan debt may be forgiven. Forgiveness of debt is taxable in the year the debt is forgiven unless taxpayer is in bankruptcy. You will get a 1099 from the lender Job Search Costs Job search costs incurred in seeking employment in the trade or business are allowable as a unreimbursed business expense. Not contingent upon job offer or acceptance Subject to a 2% AGI discount More details or have questions? Go to Publication 970 Tax Benefits of Education and contact a competent tax advisor
TM MISSOURI SCHOOL BOARDS ASSOCIATION HELPING SCHOOL BOARDS SUCCEED School District Obligations Under the New Federal Health Care Law: Is Your District Going to Play or Pay the Penalty? Click to jump to
A special thanks to the following who provided technical assistance in drafting this guidance: Leza Conliffe National School Boards Association Ken Mason Spencer Fane Britt & Browne LLP Don Tatman Tatman
Helping Yourself. Helping Your Parents. Helping Your Children. By the numbers WINNING AT THE COLLEGE FINANCIAL AID GAME With college expenses having risen significantly, financial aid can be a critical
business owner issues and depreciation deductions Individuals who are owners of a business, whether as sole proprietors or through a partnership, limited liability company or S corporation, have specific
Important information related to your financial aid award from the University of Richmond is contained in this document, including the terms and conditions of your award package. Please review this information
Pro Se Creditor s Handbook: Information for Persons Owed Money by an Individual or Entity that has Filed for Bankruptcy Introduction This booklet is provided by the Office of the Clerk, United States Bankruptcy
Table of Contents Section I Basic Information...2 Section II Financial Aid...4 Section III Disbursement of Financial Aid, Loan Repayment, Tax Benefits...10 Section IV Tuition and Fees...18 Section V Satisfactory
The Student Guide: CVCC Student Financial Aid Office 3506 Wards Road, Lynchburg, VA 24502 Room 2110, Amherst Hall Lynchburg Campus Office E-mail firstname.lastname@example.org Visit CVCC s web site at http://www.cvcc.vccs.edu
DIRECT LOAN CONSOLIDATION Self-Help Packet (February 2013) DIRECT LOAN CONSOLIDATION Consolidation Consolidation is similar to refinancing a loan. You can consolidate all, just some, or even just one of
LSAC.org FINANCIAL AID FOR LAW SCHOOL: A PRELIMINARY GUIDE INTRODUCTION Legal education is an investment in your future and is a serious financial investment as well. As with any investment, it is important
oliv January 2013 RTE/2013-43 Keepseagle Settlement Payment and Your Form 1099 Information Returns 1 Ruby Ward, 2 Trent Teegerstrom, 3 JC Hobbs and 4 Guido van der Hoeven, 1 Extension Economist & Associate
Kendall College Office of Financial Aid Program Terms & Conditions 2014-2015 email@example.com Phone: 312-752-2070 Table of Contents Introduction... 4 Federal Pell Grants... 4 Federal Supplemental
Financial AID for Law School: A PRELIMINARY GUIDE A Publication of the Law School Admission Council. Visit us at www.lsac.org or call 215.968.1001. Introduction Considering law school but concerned about
2014 Instructions for Form 8606 Nondeductible IRAs Department of the Treasury Internal Revenue Service Section references are to the Internal Revenue Code unless otherwise noted. General Instructions Future
Coverdell Education Savings Account Application In compliance with the USA PATRIOT Act, all mutual funds are required to obtain the following information for all registered owners and all authorized individuals:
Retirement Handbook You ve had a long, successful career at UC and now you re thinking of the next phase: retirement. The process is not difficult, but it s important to plan ahead. Chapter Introduction
CAGS 204-205 Colorado Christian University Financial Aid Policies Handbook College of Adult and Graduate Studies 204-205 Service Central Address: 8787 W. Alameda Ave. Lakewood, CO 80226 Hours: Monday -
Tax Subsidies for Health Insurance An Issue Brief Prepared by the Kaiser Family Foundation July 2008 Tax Subsidies for Health Insurance Most workers pay both federal and state taxes for wages paid to them
1. CLIENT INFORMATION Name: Daytime Phone: ( ) Date of Birth: SSN or Tax ID: 2. DISTRIBUTION REQUEST Please select either OPTION A or OPTION B below. Selecting both options will delay processing your distribution
Fast Forward 2015 Employer Mandate: Pay or Play? Employer Mandate Beginning Jan. 1, 2015, the Affordable Care Act (ACA) will impose an employer mandate that states that grandfathered and non-grandfathered
Federal Direct Consolidation Loan Instructions for Application and Promissory Note OMB No. 1845-0053 Form Approved Exp. Date 02/28/2014 Before You Begin Gather all of your education loan records, account
The EMPLOYEE S GUIDE TO HEALTH CARE REFORM S TAX CREDITS Calculate Your Health Insurance Tax Credit 2 Introduction Beginning in 2014, massive tax credits will become available to help individuals buy health
Adoption Subsidies Guide Office of Families and Children Booklet Contents Message to Prospective Adoptive Parents 3 About Adoption Subsidies 3 Title IV-E Adoption Assistance Programs 4 Title IV-E Adoption
Life Accounts Receivable Financing Accounts Receivable Financing A Planning Strategy for Business Owners Producer Guide These materials are not intended to be used to avoid tax penalties, and were prepared