WASHINGTON — The Internal Revenue Service today reminded parents and students that now is a good time to see if they qualify for either of two college education tax credits or any of several other education-related tax benefits.
In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.
Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.
The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.
For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings. Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.
All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.
Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 and Publication 970 for details on properly figuring allowable tax benefits.
Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:
- The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
- Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
- The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
- The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
- Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.
The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:
- Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
- The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
- Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.
Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.
Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:
- Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
- Student loan interest deduction of up to $2,500 per year.
- Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
- Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.
The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on IRS.gov.
Automated IRS System Helps College-Bound Students with Financial Aid Application Process
College-bound students and their parents sometimes face last minute requests to complete or provide additional information for financial aid applications.
The Internal Revenue wants to help by minimizing time spent on the completion of the Department of Education’s Free Application for Federal Student Aid (FAFSA). By using the IRS Data Retrieval Tool, applicants can automatically transfer required tax data from their federal tax returns directly to their FAFSA form.
This IRS tool is a free, easy and secure way to access and transfer tax return information onto the FAFSA form. Using the tool saves time, improves accuracy and may reduce the likelihood of the school’s financial aid office requesting that you verify the information.
Here are some tips on using the IRS DRT:
Eligibility Criteria To use the IRS DRT to complete their 2012 -2013 FAFSA form, taxpayers must:
o have filed a federal 2011 tax return,
o possess a valid Social Security Number,
o have a Federal Student Aid PIN (individuals who don’t have a PIN will be given the option to apply for one through the FAFSA application process), and
o have not changed marital status since Dec. 31, 2011.
Exceptions If any of the following conditions apply to the student or parents, the IRS Data Retrieval Tool cannot be used for the 2012 FAFSA application:
o an amended tax return was filed for 2011,
o no federal tax return was filed for 2011,
o the federal tax filing status on the 2011 return is married filing separately or
o a Puerto Rican or other foreign tax return has been filed.
Applicants who cannot use the IRS DRT to meet college requests for verification, may need to obtain an official transcript from the IRS. Transcripts are not available until the IRS has processed the related tax return. To order tax return or tax account transcripts, visit IRS.gov and select “Order a Transcript” or call the toll-free Transcript line at 1-800-908-9946.
In addition, the IRS offers money-saving information for college students and their parents about tax credits and deductions for qualifying tuition, materials and fees.
Student’s Page – College Bound
Order a Transcript
IRS Tax Benefits for Education: Information Center
IRS Publication 970, Tax Benefits for Education
By Stacie Kitts, CPA
I like to think of myself as a recovering recovered bubblehead. You might know the type, she was portrayed by Calista Flockhart in the late 90’s as Ally McBeal. The character was described as “annoying and demeaning to women (specially professional women) because of her perceived flightiness, lack of [knowledge], short skirts“, and….. well you get the point.
As ridiculous as it sounds, there was a time – a long time ago in a galaxy far far away – when I thought I had found the right combo. Often sporting an outfit that only Ally McBeal (an imaginary made up TV person, so like no real person should have tried to pull this off) would wear, I was, sadly, the “sexy” CPA.
Ludicrous, I know!
This style choice did not endear me to my female colleagues. And had you met me in those days, you might not have noticed that I had a brain at all. This, of course, is not the impression you want to make when your brain is what you are selling.
Flash forward ……. now we are visiting my solo “stay home” tax practice period. This quarter decade represented my relaxed period, where comfort was my style of choice. My old warn out sweats and stylish jammie sets worn around the home office probably earned me the label of “comfy” accountant. Also, NOT the serious accountant image you want to project, particularly when you are trying to convince a person who has amassed a considerable amount of wealth that you are the advisor who is going to help them keep it.
Interestingly, of these two periods, the comfy accountant was/is the hardest to overcome – a few enlightening moments, and some mentored wisdom eradicated the “sexy” CPA fairly quickly. But taking the comfy out of accounting was like a slow excruciating death.
Even so, it’s done. These days I work in an office building and I look forward to casual Fridays where I can throw on some jeans with my conservative cardigan. I might even spice it up with some colorful shoes or fun jewelry. But for the most part, first impressions are my main concern and my style choices scream I’m confident, educated, serious and professional.
Your fashion choices actually play a large part in selling you and my own fashion history is testament to this.
Being a recovered fashion bubble head probably explains why I recently had a slight meltdown when my assistant commented on how cute my suit was but added, “Your top makes you look like a big orange pumpkin.”
Let me explain.
That morning I had arrived at work wearing a conservative black suit over a cute orange top with cute orange shoes carrying my cute salmon colored purse. Just the right >pop< of color. I felt completely prepared for my big pitch to a large potential client. I was clear on the tax issues and confident in my ability to sell it. But that was before I realized that my clothing choice looked like a Halloween inspired disaster.
I hurried to the bathroom where I stood in front of the full-length mirror and thought, Oh-My-God, she’s right. Why did I pick orange and black? I look ridiculous.
Now my confidence is waning. I can’t get the pumpkin image out of my head. How was I going to sell ME and MY skills when I looked like “that” lady. You know, the one that can’t possibly own a mirror because if she did she wouldn’t be wearing that!!!!!!
My head starts to fill with possible solutions: go home and change – nope not enough time, swap blouses with a co-worker, nope not an option, run to the mall – yes there might be enough time for that there’s one right across the street. I gathered all the paraphernalia I needed for the meeting, business cards, portfolio, flyer about the company etc. and head out.
I found parking rather quickly and felt the relief flooding through my system. I ran toward the door and pull on the handle. Locked!!! It’s locked. I look at the hours – “OPEN 10am”
10AM, what? …..Shut down by my lack of knowledge about mall hours.
I pulled out my cell phone and click a button so I could see the time. 9:30 – No time to wait until it opens, find an appropriate blouse and still get to the meeting on time.
I’m screwed, I’m screwed, I’m screwed.
Despondent, I slowly slink back to my car and try to convince myself that, it’s no big deal, you can still sell it, it’s not that bad, forget it. Ya right, I was a wreck. So as I headed toward certain rejection, I resolved myself to make my pitch just the same.
But miracle of miracles, not only did I arrive early to the meeting, but by some grace of god, the meeting was across the street from a mall. A mall that was open!
It wasn’t too late, I might pull it off. I am elated, rather giddy in fact. I top the escalator and see just the perfect thing. How wonderful. I try it on and it looks great. Stepping out of the dressing room, I spot a manned sales register.
Hello, I’m in a hurry can you ring this up for me really fast?
I am sorry dear, but we just opened and it will take some time to get the registers up.
HUH, really, what? There’s noo time? NooooTime!
At this point, I’m thinking run, run with the cute blouse, go ahead make a dash for it…..it’s your only hope….It was amazing the amount of thoughts that flowed through my mind in those few seconds. Could I get away with it, I would come back later and pay, maybe she would hold onto my wedding ring for collateral.
She must have read the desperation in my expression because she says, “Wait, I think the register over here is up. Let’s see.” And glorious day, it was.
Sporting my new blouse with renewed confidence and relieved that I wasn’t a fugitive from justice, I arrived in time, made my pitch and yes, landed the client.
Hurray, disaster averted- thanks to the right first impression and my cute new blouse!
Are you looking for some information that will explain all the available IRS guidance sent out into the cosmos?
The following is a list of explanations/definitions should you be interested, need some reading material, or want something to put you to sleep at night.
For anyone not familiar with the inner workings of tax administration, the array of IRS guidance may seem, well, a little puzzling at first glance. To take a little of the mystery away, here’s a brief look at seven of the most common forms of guidance.
In its role in administering the tax laws enacted by the Congress, the IRS must take the specifics of these laws and translate them into detailed regulations, rules and procedures. The Office of Chief Counsel fills this crucial role by producing several different kinds of documents and publications that provide guidance to taxpayers, firms and charitable groups.
A regulation is issued by the Internal Revenue Service and Treasury Department to provide guidance for new legislation or to address issues that arise with respect to existing Internal Revenue Code sections. Regulations interpret and give directions on complying with the law. Regulations are published in the Federal Register. Generally, regulations are first published in proposed form in a Notice of Proposed Rulemaking (NPRM). After public input is fully considered through written comments and even a public hearing, a final regulation or a temporary regulation is published as a Treasury Decision (TD), again, in the Federal Register.
A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the information of and guidance to taxpayers, IRS personnel and tax professionals. For example, a revenue ruling may hold that taxpayers can deduct certain automobile expenses.
A revenue procedure is an official statement of a procedure that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code, related statutes, tax treaties and regulations and that should be a matter of public knowledge. It is also published in the Internal Revenue Bulletin. While a revenue ruling generally states an IRS position, a revenue procedure provides return filing or other instructions concerning an IRS position. For example, a revenue procedure might specify how those entitled to deduct certain automobile expenses should compute them by applying a certain mileage rate in lieu of calculating actual operating expenses.
Private Letter Ruling
A private letter ruling, or PLR, is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s specific set of facts. A PLR is issued to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer’s return is filed. A PLR is issued in response to a written request submitted by a taxpayer and is binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as described. A PLR may not be relied on as precedent by other taxpayers or IRS personnel. PLRs are generally made public after all information has been removed that could identify the taxpayer to whom it was issued.
Technical Advice Memorandum
A technical advice memorandum, or TAM, is guidance furnished by the Office of Chief Counsel upon the request of an IRS director or an area director, appeals, in response to technical or procedural questions that develop during a proceeding. A request for a TAM generally stems from an examination of a taxpayer’s return, a consideration of a taxpayer’s claim for a refund or credit, or any other matter involving a specific taxpayer under the jurisdiction of the territory manager or the area director, appeals. Technical Advice Memoranda are issued only on closed transactions and provide the interpretation of proper application of tax laws, tax treaties, regulations, revenue rulings or other precedents. The advice rendered represents a final determination of the position of the IRS, but only with respect to the specific issue in the specific case in which the advice is issued. Technical Advice Memoranda are generally made public after all information has been removed that could identify the taxpayer whose circumstances triggered a specific memorandum.
A notice is a public pronouncement that may contain guidance that involves substantive interpretations of the Internal Revenue Code or other provisions of the law. For example, notices can be used to relate what regulations will say in situations where the regulations may not be published in the immediate future.
An announcement is a public pronouncement that has only immediate or short-term value. For example, announcements can be used to summarize the law or regulations without making any substantive interpretation; to state what regulations will say when they are certain to be published in the immediate future; or to notify taxpayers of the existence of an approaching deadline.
- IRS Patrol:IRS Seeks New Issues for the Industry Issue Resolution Program (staciesmoretaxtips.wordpress.com)
- IRS Patrol: IRS Issues Guidance Explaining 2011 Changes to Flexible Spending Arrangements (staciesmoretaxtips.wordpress.com)
- IRS Patrol: IRS Announces Pension Plan Limitations for 2011 (staciesmoretaxtips.wordpress.com)
- 2011 Standard Mileage Rates (staciesmoretaxtips.wordpress.com)
- Tax delinquents include IRS contractors, federal employees (dontmesswithtaxes.typepad.com)
By Stacie Clifford Kitts, CPA
Seems like I am always reading someones top something… tax/accounting/business list and it always makes me wonder – just how does someone get on this list anyway?????
Like for example take Accounting Today/Tomorrow/WebCPA. This group publishes a top 100 most influential people in the accounting industry list. Every year I read it over and wonder – how do they decide who is “most influential” anyway? I mean really, is this a scientific thing? Are there compliance criteria – like a PPC guide “How to Determine the Most Influential People in Accounting” – we are talking about accountants here – I assume there’s a checklist?
I do hope its more scientific than just a bunch of journalists sitting around a conference table, sipping coffee and munching on donuts while someone writes names on a white board. Just picture it, a bunch of bored staff writers some twisting slightly in their chairs, some lounging about, others lazily calling out names. Then someone says, “hey cross off Sally Johnson, she was rude to me at blah blah conference. she doesn’t make it this year.” Yowser,I hope it doesn’t work like that!!!
Recently, I’ve been contacted by a “.com site” or two. These sites were letting me know that I could be listed on a top something list….so –be sure to mention it at Stacie’s More Tax Tips- wont you?
While I get how this whole quid pro quo thingy works, I have declined 100% of the “link to us, we’ll link to you” offers. I’ve even turned down click for payment offers because I didn’t think the link topics where appropriate for my my site.
But you know what, I’ve decided that gosh darn my blog is interesting.. And yes siree, I deserve to be on a top anything list.. And, it has absolutely nothing to do with quid pro quo. Nope, they of course see the genius that is my blog and feel compelled to share. So thanks to bschool.com for naming Stacie’s More Tax Tips in the 50 best Blogs to Get You Through Tax Season.
Oh by the way, the picture is of me and the grandbaby enjoying Christmas day with the family!
- Ping Your Way To a Successful Social Marketing Strategy – It’s A Whole Lot Better Than Being an A-Hole (staciesmoretaxtips.wordpress.com)
- 2010 in Review – The Health of Stacie’s More Tax Tips – I Feel Like Doing The Snoopy Dance! (staciesmoretaxtips.wordpress.com)
- Snubbed Again! And a Sincere Apology (staciesmoretaxtips.wordpress.com)
- Are You All a Twitter About Tax News? Now You Can Follow The IRS @IRSnews (staciesmoretaxtips.wordpress.com)
- IRS Presents:Ten Things Tax-Exempt Organizations Need to Know About the Oct. 15 Due Date (This is a how to on keeping your exempt status) (staciesmoretaxtips.wordpress.com)
- Accounting blogs for the kids (dontmesswithtaxes.typepad.com)
- Picking Apart the IRS’ Top 10 Tax Time Tips (staciesmoretaxtips.wordpress.com)
By Stacie Clifford Kitts, CPA
Feb. 14 is the magic filing date.
Well, I guess the IRS finally figured it out and reprogrammed their computer system to accommodate the new tax changes.. If you file Schedule A that is you itemize, or you will take the hirer education tuition and fees deduction on Form 8917, or even the educator expenses deduction, you will be able to file your tax return (hopefully) starting on Valentines Day. How romantic, a gift of tax filing for your sweetheart.
Read on for more info:
WASHINGTON — The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by last month’s tax law changes. The IRS reminded taxpayers affected by the delay they can begin preparing their tax returns immediately because many software providers are ready now to accept these returns.
Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.
People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms.
Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.
Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.
The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.
- Filing Valentine from the IRS (dontmesswithtaxes.typepad.com)
- Taxpayers who itemize can start filing returns on Feb. 14 (usatoday.com)
- Some Tax Payers Will Need to File Their 1040 Later Rather Than Sooner This Coming Filing Season (staciesmoretaxtips.wordpress.com)
- Valentine’s Day marks start of tax season for many (sfgate.com)
- When can you file your 2010 tax return? (mnn.com)
HERE’S A LESSON IN QUESTIONABLE CUSTOMER SERVICE – DON’T MESS WITH SOMEONE WHO HAS A BLOG THAT PEOPLE ACTUALLY READ
By Stacie Clifford Kitts CPA
I just can’t help myself. I need to tell you because you are not going to believe what I am doing right now.
If you are familiar with popular tax and write-up software companies, i.e. you’re a CPA or tax professional, then you might recognize the number that’s showing on my phone in this picture.
Let me break down what you are looking at.
The 800 number showing on the screen represents the “customer service” number for my tax software provider. The bottom right hand number represents the time that has passed since I have been on the phone trying to resolve an issue with the software.
Now the first hour of time that is depicted reflects the time I spent with a technician who was trying to get my custom letterhead to work properly. The idea of adding your letterhead to the software is to save time. That is, when I print a tax return, the transmittal letter and filing instructions will print on my letterhead eliminating a processing step. Yeah for everyone because the less time I spend on a return theoretically the more savings I can pass onto my clients. Very cool – if it worked!
Anyway, the tech was very nice and told me he would call me back tomorrow when he had more time to figure out why it wasn’t working.
This is when I made my fatal mistake and asked to be transferred to a different department so I could resolve yet another problem with the software. The person who took this call was unable to assist me and asked if she could put me on hold to research the issue. As of the writing of this blog, I have been on hold for over 65 additional minutes (a total of 2 hours and 5 minutes of time on the phone with you know who).
What do you think? Is my friendly customer service rep who had no idea how to answer my question heading home, or maybe she’s already home getting ready for bed spending time with her family – while I languish on hold like a spurned desperate lover hoping someone will come back to the phone and resolve my problem.
That’s right loyal readers, she forgot about me. ***Ugh*** I feel like such a loser. 😦