Education Benefits Education Benefits NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

New Approach Dept of Treasury interpretation Therefore: Takes a more time to train Some sites see VERY few students Therefore: Train so that counselors understand the issue. Have resources available NTTC Webinar – Oct 2015

Resources Pub 4012 Tab J (especially J-2 and J-3) Education Cookbook Education Calculator Education Spreadsheet (if you can’t use the Calculator) NTTC Webinar – Oct 2015

Student Documents NTTC Webinar – Oct 2015

Form 1098-T For 2016, will be required by IRS for both credits and T&F adjustment For 2015, is recommended by Tax-Aide for American Opportunity Credit Dollar amounts are frequently wrong NTTC Webinar – Oct 2015

Review Tuition Statement— Form 1098-T Education Benefits Review Tuition Statement— Form 1098-T Grants and Scholarships Total Paid: 1 15 or Amounts billed: 2 But see Managing Scholarships and Education Benefits tool later for ways to reduce net tax liability Status Indicators: Boxes 8 and 9 NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Review Tuition Statement — Form 1098-T Need to see Form 1098-T BUT Amounts MUST be verified with taxpayer Best source is the student’s statement of account with the school Usually available on line NTTC Webinar – Oct 2015

Student Statement NTTC Webinar – Oct 2015

Student Statement NTTC Webinar – Oct 2015

Student Statement Bookstore charges NTTC Webinar – Oct 2015

Education Benefits Education Benefits Benefits in this lesson cannot be determined until the rest of the return has been completed. NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Many Different Benefits Congress has passed many different laws giving tax benefits for education Summarized in 4012, Pages J-2 and J-3 Sometimes different benefits use the same words but have different definitions for them NTTC Webinar – Oct 2015

Many Different Benefits— Pub 4012 Page J-2 Education Benefits Many Different Benefits— Pub 4012 Page J-2 Leave this page open on your desk and make notes here. NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

No Double Dipping Each student can claim (or be claimed for) only one of these three benefits American Opportunity Credit Lifetime Learning Credit Tuition and Fees Adjustment NTTC Webinar – Oct 2015

Education Benefits No Double Dipping Different credits or adjustment can be claimed for different students Example: Taxpayer’s dependent child is full-time college student—American Opportunity Taxpayer takes one job-related course at local college—Lifetime Learning NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

No Double Dipping Unused expenses can be applied to other benefits Education Benefits No Double Dipping Unused expenses can be applied to other benefits Same expenses cannot be used twice NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Education Benefits No Double Dipping In other words, qualified expenses must be reduced by amount paid with: Tax-free scholarships and grants Employer- or VA-provided educational assistance Any other nontaxable payments (other than gifts, bequests, or inheritances) NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

No Double Dipping If grant or scholarship conditions allow: Education Benefits No Double Dipping If grant or scholarship conditions allow: Student can choose to pay tax on all or part of the scholarship/grant, then it won’t be tax-free, and Student or parents can use all expenses toward education credits. Larger education credit may offset added tax NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Exceptions to the Rules Education Benefits Exceptions to the Rules and Exceptions to the Exceptions NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Refundable American Opportunity Credit Education Benefits Refundable American Opportunity Credit Rule: 40% of American Opportunity Credit is refundable Exception: If student is not claimed as a dependent but is under age 24, credit is not refundable Excptn to Excptn: See next two slides (Page J-8) NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Claiming AOC – Under Age 24 Education Benefits Claiming AOC – Under Age 24 None of American Opportunity Credit is refundable if Taxpayer claiming credit is under age 18 -OR- age 18 at end of year, and their earned income was less than one-half of their own support -OR- a full time student over 18 and under 24 and their earned income was less than one-half of their own support AND ... These are the same criteria as for the kiddie tax NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Claiming AOC – Under Age 24 Taxpayer has at least one living parent, AND Taxpayer does not file a joint return But can still claim nonrefundable portion of the American Opportunity Credit! NTTC Webinar – Oct 2015

Business Expense Exceptions Does not have to be at qualifying education institution Qualifying Expenses include Transportation Travel NTTC Webinar – Oct 2015

No Double Dipping Rule: Same expenses cannot be used in two places Exception: Expenses used to waive or reduce additional tax on early IRA distribution can also be used elsewhere NTTC Webinar – Oct 2015

Interaction between Benefits and Other Taxes Some Benefits Affect AGI Some Don’t NTTC Webinar – Oct 2015

Interaction of Benefits Some Benefits Reduce Tax American Opportunity Credit 100% of first $2,000/student 25% of second $2,000/student Lifetime Learning Credit 20% of first $10,000/return NTTC Webinar – Oct 2015

Interaction of Benefits Others reduce AGI, affecting Earned income credit Premium tax credit and shared responsibility payment Child and dependent care credit Retirement savings credit State tax return NTTC Webinar – Oct 2015

Interaction of Benefits Taxpayer can choose Where to claim expenses Whether to pay tax on grants and scholarships so expenses can be used towards credits NTTC Webinar – Oct 2015

Interaction of Benefits Which is better? How do we help the taxpayer decide? Try different scenarios in TaxWise and compare them, or Use calculator to maximize refund NTTC Webinar – Oct 2015

Example: Clyde Clyde (age 27) lives with and supports his son Stevie (age 6). Clyde works and goes to college part-time. Wages: $20,000 Pell grant: 5,400 Tuition 4,100 Books 300 NTTC Webinar – Oct 2015

Example: Clyde Scenario 1: Subtract expenses from the grant and pay tax on the remainder Grant $5,400 Less tuition - 4,100 Less books - 300 Taxable grant $1,000 NTTC Webinar – Oct 2015

Less remaining expenses - 400 Example: Clyde Scenario 2: Up to $4,000 to AOTC Tuition $4,100 Books + 300 Total expenses 4,400 Less AOTC expenses - 4,000 Remaining expenses 400 Unrestricted grant 5,400 Less remaining expenses - 400 Taxable grant $5,000 NTTC Webinar – Oct 2015

Less remaining expenses - 2,400 Example: Clyde Scenario 3 : Just $2,000 to AOTC Tuition $4,100 Books + 300 Total expenses 4,400 Less AOTC expenses - 2,000 Remaining expenses 2,400 Unrestricted grant 5,400 Less remaining expenses - 2,400 Taxable grant $3,000 NTTC Webinar – Oct 2015

Why try to eliminate filing requirement? For non-dependent students who meet criteria on J-8 (under age 24) Avoids “kiddie tax”— occurs if taxable scholarships + unearned income greater than $2,000 — and makes return OOS For dependents Avoids “kiddie tax” Avoids adding student’s MAGI to parents’ MAGI for ACA issues NTTC Webinar – Oct 2015

Education Benefits Comparison Tools Use Jeff Bogart’s optimizer at http://tools.cotaxaide.org/Education Calculator.html If your taxpayer’s situation includes credits not covered by the optimizer, use the “Education Cookbook” and “Education Calculator” from OneSupport NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Pub 4012 Pages J-2 and J-3 It’s all here! Education Benefits NTTC Webinar – Oct 2015 NTTC Oct. 23 2015

Education Benefits Questions? Comments? Education Benefits NTTC Webinar – Oct 2015 NTTC Oct. 23 2015