VITA: 01/17/09 Lesson 17 Supplement: Educator Expenses and Tuition & Fees Adjustments Winter 2008 Kristina Shroyer

Lesson 17 Supp: Educator Expenses These two adjustments in the supplement were set to expire in 2007 but were extended through the Emergency Economic Relief Act of 2008 Educator Expenses Adjustment What is it? Eligible Educators can deduct up to $250 of qualified expenses as an adjustment to income ♦ If both taxpayer and spouse are qualified educators up to $500 ($250 each) but neither spouse can deduct more than their first $250 Who is eligible? Teachers, Instructors, Counselors or Aides in a School ♦ Cannot be a home school ♦ Must be a K-12 School ♦ Must be employed at least 900 hours during the school year What expenses qualify? Qualified Expenses ♦ Books, supplies, equipment and other materials used in the classroom ♦ the educator must have documentation (receipts) Expenses that do NOT qualify ♦ home schooling ♦ non-athletic supplies for physical education ♦ health courses Examples page 19

Lesson 17 Supp: Educator Expenses Educator Expenses Adjustment (continued) Reductions Educator Expenses must be reduced by any reimbursements not listed on form W-2 and by the other two situations listed on page 20 ♦ If the other two situations apply the taxpayer should know it How to Report Line 23 of Form 1040 The Sample Interviews and TaxWise hints are good to read through The interview is important because you want to have all relevant information from the taxpayer ♦ You don’t want to miss anything ♦ You want to be able to complete the tax return and not need more information

Lesson 17 Supp: Educator Expenses These two adjustments in the supplement were set to expire in 2007 but were extended through the Emergency Economic Relief Act of 2008 Tuition and Fees Adjustment What is it? Taxpayers can deduct as an adjustment to income up to $4,000 in qualified tuition and fees paid during the tax year The deduction is based on MAGI, the taxpayer's filing status and other factors See table on page 22 for MAGI and filing status info Form 8917 Used to help compute the taxpayer's MAGI (Modified Adjusted Gross Income) for thid ♦ TaxWise completes the MAGI part of this form automatically ♦ Let's look at the form Look at the second example (MFS does not qualify)

Lesson 17 Supp: Educator Expenses Tuition and Fees Adjustment (continued) Who is eligible for the deduction? Taxpayer must have paid qualified education expenses for an eligible student to attend an eligible education institution during the tax year Deduction can be claimed for the taxpayer, the taxpayer's spouse, or any dependent for whom the taxpayer CLAIMS a dependency exemption The tuition and fees deduction CANNOT be claimed by: ♦ Taxpayer filing as MFS ♦ An individual who is a dependent of another taxpayer In order to claim the deduction for expenses paid for a dependent who is an eligible student the taxpayer 1. Must have paid the qualified expenses 2. Must claim the exemption for the dependent ♦ If the student is eligible to be claimed as a dependent (even if they are not actually claimed) but paid his or her own expenses, NOT one can take this adjustment ♦ A student who does not qualify to be claimed as a dependent can take this deduction even if they did not pay the expenses…in this case the student can treat the amounts paid by someone else as a gift Taxpayers not eligible to claim this adjustment due to the dependency issue may be eligible for an Educational Tax Credit (covered next week) Read Examples

Lesson 17 Supp: Educator Expenses Tuition and Fees Adjustment (continued) What are qualified tuition and fees expenses? Qualified tuition and fees include: ♦ tuition and fees required for enrollment or attendance at an eligible educational institution ♦ books, supplies and equipment are ONLY a qualified expense IF the fees must be paid TO THE INSTITUTION as a condition of enrollment or attendance  For this reason books are usually not a qualified exp  ense nor is supplies and equipment Qualified tuition and fees do NOT include: ♦ Insurance, medical expenses (including student health fees), room and board, student activities, transportation, other personal living and family expenses (even if the fees must be paid as a condition of enrollment or attendance), athletic fees, or any other unrelated fees Read last paragraph on page 23 Form 1098-T can be used to help figure the tuition and fees deduction What is an eligible educational institution?

Lesson 17 Supp: Educator Expenses Tuition and Fees Adjustment (continued) Who is an eligible student a student who was enrolled in one or more courses at an eligible educational institution The student must have either a high school diploma or a General Educational Development (GED) credential. How to compute the deduction amount Fill out Form 8917 ♦ TaxWise will do a lot of this for you Which education benefit is better? If taxpayers claim this adjustment they cannot claim the education tax credits (Hope or Lifetime Learning) For some taxpayers the credit is better than the adjustment and for other taxpayers it’s the other way around you want to give the taxpayer the best education benefit ♦ What you can do is compute the education benefit both ways in TaxWise, see which is better and then give the taxpayer the better benefit