tax-aide education benefits nttc webinar – oct 2015 1
TRANSCRIPT
TAX-AIDE
TAX-AIDE
Education Benefits
NTTC Webinar – Oct 2015 1
TAX-AIDE
New Approach
● Dept of Treasury interpretation 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 2
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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 3
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Student Documents
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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 5
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Review Tuition Statement— Form 1098-T
NTTC Webinar – Oct 2015 6
Total Paid: 1
Status Indicators: Boxes 8 and 9
Grants and Scholarships
or Amounts billed: 215
TAX-AIDE
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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Student Statement
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Student Statement
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Student Statement
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Bookstore charges
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Education Benefits
Benefits in this lesson cannot be determined until the rest of the return has been completed.
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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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Many Different Benefits—Pub 4012 Page J-2
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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 14
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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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No Double Dipping
● Unused expenses can be applied to other benefits
● Same expenses cannot be used twice
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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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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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Exceptions to the Rules
and Exceptions to the Exceptions
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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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Claiming AOC – Under Age 24
None of American Opportunity Credit is refundable if
1.Taxpayer claiming credit is a) under age 18 -OR-
b) age 18 at end of year, and their earned income was less than one-half of their own support -OR-
c) a full time student over 18 and under 24 and their earned income was less than one-half of their own support
AND ...
NTTC Webinar – Oct 2015 21
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Claiming AOC – Under Age 24
2. Taxpayer has at least one living parent,
AND
3. Taxpayer does not file a joint return
But can still claim nonrefundable portion of the American Opportunity Credit!
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Business Expense Exceptions
● Does not have to be at qualifying education institution
● Qualifying Expenses include Transportation Travel
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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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Interaction between Benefits and Other Taxes
Some Benefits Affect AGISome Don’t
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Interaction of Benefits
● Some Benefits Reduce Tax American Opportunity Credit
100% of first $2,000/student25% of second $2,000/student
Lifetime Learning Credit20% of first $10,000/return
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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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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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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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Example: Clyde
Clyde (age 27) lives with and supports his son Stevie (age 6). Clyde works and goes to college part-time.
Wages: $20,000Pell grant: 5,400Tuition 4,100Books 300
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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
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Example: Clyde
● Scenario 2: Up to $4,000 to AOTCTuition $4,100Books + 300 Total expenses 4,400
Less AOTC expenses - 4,000 Remaining expenses 400
Unrestricted grant 5,400Less remaining expenses - 400
Taxable grant $5,000
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Example: Clyde
● Scenario 3 : Just $2,000 to AOTCTuition $4,100Books + 300 Total expenses 4,400
Less AOTC expenses - 2,000 Remaining expenses 2,400
Unrestricted grant 5,400Less remaining expenses - 2,400
Taxable grant $3,000
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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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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
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Pub 4012 Pages J-2 and J-3
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It’s all here!
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Education Benefits
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Questions?
Comments?