1. Education Benefits Education Benefits NTTC Webinar – Oct 2015
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2. 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
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3. Resources Pub 4012 Tab J (especially J-2 and J-3) Education Cookbook
Education Calculator
Education Spreadsheet (if you can’t use the Calculator)
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4. Student Documents
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5. 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
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6. 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
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7. 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
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8. Student Statement
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9. Student Statement
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10. Student Statement
Bookstore charges
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11. Education Benefits
Education Benefits
Benefits in this lesson cannot be determined until the rest of the return has been completed.
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12. 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
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13. 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.
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14. 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
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15. 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
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16. 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
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17. 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)
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18. 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
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19. Exceptions to the Rules
Education Benefits
Exceptions to the Rules
and Exceptions to the Exceptions
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20. 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)
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21. 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
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22. 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!
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23. Business Expense Exceptions
Does not have to be at qualifying education institution
Qualifying Expenses include
Transportation
Travel
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24. 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
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25. Interaction between Benefits and Other Taxes
Some Benefits Affect AGI Some Don’t
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26. 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
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27. 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
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28. 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
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29. 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
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30. 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
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31. Example: Clyde
Scenario 1: Subtract expenses from the grant and pay tax on the remainder
Grant $5,400
Less tuition - 4,100
Less books
Taxable grant $1,000
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32. Less remaining expenses - 400
Example: Clyde
Scenario 2: Up to $4,000 to AOTC
Tuition $4,100
Books
Total expenses 4,400
Less AOTC expenses - 4,000
Remaining expenses
Unrestricted grant 5,400
Less remaining expenses
Taxable grant $5,000
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33. Less remaining expenses - 2,400
Example: Clyde
Scenario 3 : Just $2,000 to AOTC
Tuition $4,100
Books
Total expenses 4,400
Less AOTC expenses - 2,000
Remaining expenses 2,400
Unrestricted grant 5,400
Less remaining expenses ,400
Taxable grant $3,000
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34. 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
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35. Education Benefits
Comparison Tools
Use Jeff Bogart’s optimizer at Calculator.html
If your taxpayer’s situation includes credits not covered by the optimizer, use the “Education Cookbook” and “Education Calculator” from OneSupport
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36. Pub 4012 Pages J-2 and J-3 It’s all here! Education Benefits
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37. Education Benefits Questions? Comments? Education Benefits
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