Tag: Education Expense


Education Tax Credit – and Life Time credit

Sanjiv Gupta CPA - 8 years ago
The internal Revenue Service has designed certain tax-break plans for students who take an educational loan. The two most popular credit facilities offered by the government were American Opportunity Credit, which straight away deducted $2500 on taxable expenses and the Lifetime learning credit which still offers a $2000 deduction for graduate-level courses. However recently it was declared that American Opportunity Credit will be rendered inactive from 2012. In this article, we will try to cover all aspects of the Lifetime Learning Credit.Lifetime learning credit does not limit the duration of the learning period for students. This is one major merit of the credit program. Students can keep engaged in academic courses for a number of years. $2000 is sanctioned as under Lifetime Learning Credit as qualified education expenses for an eligible student. Unlike a deduction program that concentrates on reducing the tax amount payable as per income, Credit plans reduce gross tax itself. This means that you can curtail your taxes to an exact zero figure. However, if the credit is more compared to your tax then the excesses will not be refunded to you. Before you apply for a credit program you can check up on the tuition and fees deduction regulations. This program is also quite popular for its tax breaks. The credits, however, have to be selected per year/per term basis and can be used for only one student at a time. Whoever files a student’s tax return as a single entity is eligible to apply for Lifetime Learning Credit. The student has to be a sole guarantor of such a credit program. Part-time students can also secure the Lifetime Learning Credit. This is another benefit that makes the program popular amongst various other tax-break plans. The expenses that are covered under Lifetime Learning Credit are tuition fees, books provisions, tools and equipment pertinent to the specific academic course of the student.  Lifetime learning credit does not facilitate lodging-related expenses or other private allowance like transport etc.  Lifetime learning credit does not cover expenses for a course that is taken up as a hobby, cannot be used for tuition fees paid as scholarships, applicable once per year/ per household. Such credit won’t stand valid for a student who already has opted for a Hope Scholarship or tuition and fees Deduction program. If lifetime learning credit is a part of your skill enhancement program then you cannot apply for any kind of business expense deduction on the amount payable as tax.Lifetime learning credit calculation is simple to follow; a flat 20% deduction on the qualifying expenditure of $10,000. For disaster-prone western countries, the discount amount may actually be doubled to $4000. Refer to Publication 970 to get a better picture of the Lifetime Learning Credit Program. American Opportunity Credit and Lifetime Learning credit do not have a similar tax structure. Lifetime learning credit is preferred to American opportunity credit because Lifetime credit plan can be carried out over a number of years. American opportunity credit on the other hand covers a maximum of 4 years of academic qualification expenses. Also, Lifetime Learning Credit gains an upper hand when compared with Hope credit. While Hope credit facilitates a deduction of $1800 and no special allowance for the mid-western disaster-prone area, lifetime credit offers $2000 for the normal program and $4000 for students who reside in the disaster-prone areas. Even there is a huge disparity when considering the duration of policy validation; hope credit provides a mere 2 years coverage while lifetime learning credit does not have any time limitation. To apply for Hope credit students should have certain pre-qualification credentials. This is not mandated for Lifetime Learning Credit. The advantage list for lifetime learning credit runs long. Lifetime learning credit can be claimed by filing federal tax form 1040 and 1040A along with form 8863 without having to itemize deduction.

Education Tax Deductions and Credits Can Help Save You Money

Sanjiv Gupta CPA - 6 years ago
The cost of college is always increasing; however, there is some relief with education tax deductions and credits. Qualified education expenses may be deducted for your dependents, yourself or your spouse. These tax deductions and credits help more parents and students pay for college expenses. American Opportunity Tax Credit The American Opportunity Tax Credit helps taxpayers save money on the cost of post-secondary education. It is a tax credit for undergraduate college qualified expenses. This credit was extended until Dec. 31, 2017, when the 2012 American Taxpayer Relief Act was passed.Tax credits are better than tax deductions because credits reduce the total amount of tax owed or it increases the total amount of your refund in the credit amount. This means that your tax liability will be reduced one dollar for each eligible credit. There is a $2,500 maximum per student for the American Opportunity Tax Credit. In order to qualify, you need to have paid a minimum of $4,000 during the year in qualified education expenses. If you do not incur a tax liability during the year, this credit is still partially refundable up to 40%.What Expenses Qualify For The Education Tax Credits?The American Opportunity Tax Credit is unlike other education-related tax credits because, in addition to tuition, it also includes expenses for supplies, equipment and course-related books that are not always paid directly to the educational intuition. Computers qualify for the tax credit if the computer is needed as a condition of attendance or enrollment at the educational institution. These expenses for course materials must be needed for the course of study.This credit is allowed to be claimed for expenses that are incurred during the first 4 years of post-secondary education. The expenses must be paid during the taxable year and relate to the academic period that begins during the same year or the academic period that begins during the first 3 months or the following taxable year.There are several expenses that do not qualify for the education tax credits. These expenses include:TransportationRoom and boardMedical expensesInsuranceStudent fees that are not required as a condition of attendance or enrollmentExpenses that are paid with tax-free assistanceExpenses that are used for another educational benefit, tax credit or tax deductionDo I Qualify For The American Opportunity Tax Credit?The education expenses must relate to the first 4 years of college after high school to qualify for this tax credit. Although graduate students do not qualify for the American Opportunity Tax Credit, there may be other tax deductions and credits that may be eligible for including the Tuition and Fees Deduction and the Lifetime Learning Credit. The American Opportunity Tax Credit is not available for single filers with a modified AGI (adjusted gross income) higher than $90,000 or people filing jointly with income higher than $180,000.What is the Tuition and Fees Deduction? If you have paid a minimum of $4,000 in education tuition and fees, the tuition and fees deduction maximizes out at $4,000. This is a tax deduction and is not the same as a tax credit. Additionally, it is different than the American Opportunity Tax Credit because the deduction for upper income is phased out at a slightly lower income range. This deduction is not available for single filers with a modified AGI (adjusted gross income) higher than $80,000 or people filing jointly with income higher than $160,000.It is important to understand that you cannot use the American Opportunity Tax Credit and the Tuition and Fees Deduction in the same year. You need to choose between taking the Tuition and Fees Deduction or claiming the American Opportunity Tax Credit.

How to Request for Employer Paid Courses

Sanjiv Gupta CPA - 3 years ago
It is possible to convince employers to pay for the employee’s education. This is a long-term goal that a company should aspire for because the employee can receive new skills that will benefit the business. There are various direct benefits to employer-funded education and HR managers are knowledgeable of these. By providing employees paid courses, there is an increase in loyalty, a reduction in employee turnover, an increase in productivity and the ability to take new projects and opportunities to showcase their skills in leading.Higher education increases the productivity of the company. HR managers must explain to employees that when they successfully complete their further education that the company paid for, then they can take on additional projects. This enables both the employee and the employer to take on more work and incur additional revenue.At least half of American workers receive educational benefits from jobs. Most employers also pay for courses that are considered work-related. But not a lot of employers pay for practically every course. A way to maximize your chances of getting the employer to help pay their school fees.Check out the details of the employer’s school benefits before they even sign up for any classes.  They must also make sure that the course they sign up for is qualified. They should also check with HR if there is a grade requirement that they have to maintain. There are employers that will not pay the tuition of the employee’s grades are low.These education benefits assist the workers – whether they are full time or part-time – to get further in their careers. Research shows that the more employers invest in their employees, the more loyal the employees are to stay in the business.How Companies Pay for their Courses Many large enterprises have partnered with universities and local colleges. This lets them have a company-specific training that can benefit the company as well as the student. There are companies that offer scholarships to employees as well as their families and assist them in the costs of higher education. This is usually a benefit included in the employee compensation package, which is quite attractive. This is the special payment that is offered to the employee as long as he or she does enroll in that college or university.The company can also take additional tax credits and deductions that are rooted in employee education funds. As long as the education qualifies for the IRS guidelines and is within the confines of the industry or trade, then there is no problem. Naturally, employees must check with the tax preparer so that the extent of the eligibility can be determined before a claim is made.The most common form of educational assistance is the tuition reimbursement plan. This means that upon enrollment or completion of the education and the employee shows proof of both, the company then supplies the funds to support the former’s educational endeavors.How to Discuss Employer Paid Courses Pick a degree or a diploma or a designation or certification.Pick a course and a school or college.Create a list of how the company will benefit from the employee’s education.Here are examples:The employee adds new skills to the existing workforce.The employee is more productive and can also increase company revenue.The employee takes on new projects to generate more revenue.The employee can take on leadership and management roles in the company.The diploma and degree of the employee will add give prestige and add a more professional image for the business.The employee can mentor the incoming employees and also spread his or her newly gained skills to the employees.The employee must anticipate the concerns or questions that the HR manager presents. He or she must answer these in a style that concludes the higher education can benefit the business. If the concern is that the education will take the employee away from work, the proper response is that the employee can take on online classes or night classes and make this fit into his free time. This already adds the skill of time management as well as an increase in productivity.If the concern is that education is an additional expense for the company, the proper response is that tuition cost less as opposed to the training or even hiring new employees who have the certification, diploma or degree that the business requires. The employee’s education can make money for the business.If the employee refuses, do not give up. It is possible to try again after three or four months or even next quarter.Contract on Employer Paid CoursesIf the employer agrees to reimburse the employee’s tuition, then there must be an education contract. This must be read carefully and meticulously and also discussed with the HR manager. If there are any clauses that are not understood or deemed agreeable, then it must be brought up. The employee has the right to not sign the contract if he or she does not agree with the terms.An example of the term is that the employee agrees to stay with the business for a certain duration. The business requires this because they do not fund the training for the employee only to have him or her goes to another. The employee must be sure of what he or she wants and if it is the right time to do this, then he or she can sign the agreement.The employee must also know how to refund the tuition. Either the company directly pays the university or the college or the money is given to the employee. Other concerns include: will the company immediately pay once the employee completes the studies? Will the employee be required to achieve and maintain a specific grade point average? What happens if the employee fails to do this?Another important concern for the business is what is the consequence if the employee does not attend classes? This can be because there are problems due to health issues, personal nature or family matters. There are other circumstances that can also take place and prevent the employee from completing their degree or course. If that is the case, do they have to repay what the company has paid?Four Steps to Using Employer Paid Courses Earning a college degree and working at the same time is a smart professional move. It increases the employee’s value to the employer and also secures the former’s job. It also improves and heightens the career trajectory. As the employer works and studies to get a degree, he or she maintains the flow of income and also reduces the reliance on student loans. If the employer then offers the Tuition Assistance Program, the employee can also come out on top.Definition of a Tuition Assistance Program A Tuition Assistance Program is run through the employer’s HR Department. This is where employees can also take the courses and the degree that has already been paid by the employer. According to the IRS, companies can allot up to $5,250 for educational assistance every year. This results in the employer, not including the benefits with the employee’s tips, wages, and compensation that is shown on W-2. This also means that the employee does not have to list these benefits down on their ITR.First Step: Research Before the employee takes advantage of the employer-paid courses, they must research is there is a program that is they are qualified to take in their work setting. The HR Department is the best place to ask. If the employer provides paid courses then the employee must make sure that there is a written policy.Here are key questions that should be asked to HR:What are the available and eligible college courses? Does the employer pay for undergraduate or graduate classes? Is it credit-bearing? Is it non-credit bearing? Do they accept online college classes?How will the courses be reimbursed? Does the company pay for the courses that the employees required to take upfront? Or does the employee pay the tuition then just request to be reimbursed upon completing the course? Who should they submit the request to? Is this on a semester basis? Is this on a per course basis?Should the employee meet and maintain a certain GPA requirement? What are the consequences if he or she fails a class or has no choice but to drop out?Second Step: Sign Up for CoursesA multitude of businesses offer education benefits that have increased in terms of revenue over the last 10 years. There is a high possibility that even if the employer did not offer a tuition reimbursement plan prior, they do so right now. It is worth checking out. Before employees sign up for the courses, they should know the following:Which of the courses are considered eligible? There are some employers that require the courses be taken directly because it is associated with the job. Then there are others that the courses and there are still that require the classes that is strictly business in nature. It really depends on the employer and the policy of the company.Are there providers that have been approved to assist financially? Employers have partnerships with approved colleges and universities and specific courses regarding the employer-sponsored educational programs.Does the employee have to be approved by the manager? There are employers that require sign-off from the supervisor or the manager. If this is a requirement, then he or she must determine which courses and classes are connected to the job and eligible to be reimbursed.What is the process for enrollment? In most situations, the employer’s tuition reimbursement program must be notified and the employee must sign up here before he or she can enroll at the preferred university, college or institution for higher learning. Third Step: Maximize Your BenefitsOnce the employee has gained approval for the educational plan from the employer, the next step is to maximize every dollar obtained from the benefit.  Here are some ways to do so:Take classes and courses that are eligible for credit. Upgrade skills and obtain college credit that is eligible to transfer into the accredited degree programs.Consider options of low-cost. Employees must research the lowest possible cost for their education so when combined with the benefits that they would get from their employer, then they would completely have a full year of college at a minimum amount.Reduce the risk. If the employee is unsure regarding the feasibility of returning to school, then he or she must take a free trial and gauge whether they can fit school in their work life. Starting college when you are already working full time can mitigate risks when it comes to time and money.When making the most out of the employer-paid courses program, the employee must always pay close attention to what is written. According to the IRS, there are services that can use educational benefits. There are also some benefits that cannot do this. Employers may also have additional requirements that are not written on the fine print.Fourth Step: Measuring Progress Whether the employee is pursuing an undergraduate or a graduate degree, then he or she must evaluate the direction that the employee will head. The employee may find that he or she is ready to lead new projects in the workplace and even apply the skills that have been acquired in the further studies program. After training, these employees may even be considered for promotions.Making the Most of Employer-Paid Courses If the employer offers paid courses through a tuition assistance reimbursement program, then the employees who wish to pursue further studies are definitely fortunate. They have to make sure that they make the most out of this once in a lifetime opportunity so that they can invest in themselves. They shouldn’t take this granted as well.

How to pay for school and college expenses?

Sanjiv Gupta CPA - 1 year ago
Recent high school graduates embarking on their college journey for the first time or students returning to the colleges and universities they are enrolled at all have the same burden – paying for college. This can be quite a daunting task for students and parents that may drill holes in their pockets. Here are tips on education tax benefits that can assist in the offset of college costs.American Opportunity CreditIn various cases, there is credit that offers greater tax savings and also exist in the education tax breaks. Here are some key features of said credit:– Tuition, books, related fees, and other required course materials also qualify. In the past, books were not even eligible for credits and deductions that are related to education.– Credit is often equal to 100% of the $2,000 that is first spent and then 25% of the $2,000 that follows. This amounts to the complete $2,500 credit that is made available to the taxpayer as long as he or she pays the amount of $4,000 to what is considered the qualified expenses for eligible students.– If the student qualifies, he or she can take the credit even if the individual has taken the Hope or Lifetime Learning Credit years before 2009.– The full credit is available for taxpayers who have the MAGO or modified adjusted gross income amounting to $80,000 or less. For married couples who are filing a joint return together, the limit is $160,000. The credit is then phased out for those who pay their taxes with income that is more than this amount. These income limits are also higher than the former Hope and current Lifetime Learning credits.– 40% of the American Opportunity Credit is also refundable. This means that people who do not owe any tax can receive the yearly payment of the credit that can amount to $1,000 for every eligible student. The other existing credits and deductions that are related to education also do not provide the benefit to people who do not owe taxes. The refundable portion of the credit is also made available to students whose investment income has been taxed at the parent’s rate which is also referred to as kiddie tax.A number of taxpayers who pay post-secondary education are eligible for American Opportunity Credit. There are others who do not. The limitations include married couples who are filing separate returns, no matter how much they make. MAGI joint filers earning $180,000 or above that amount are also not qualified. Finally, the single taxpayers, certain widows and widowers with the MAGI of $90,000 or more and heads of households are also not qualified.There are post-secondary education expenses that do not qualify for American Opportunity Credit. These include the expenses that have been paid for students, who at the beginning of the tax year have already completed the four years of college as their credit on their first try and are only granted four years of post-secondary education. For the students who qualify, they can claim for the Lifetime Learning credit instead.Lifetime Learning CreditIf the student fails to qualify for American Opportunity Credit, he or she can qualify for Lifetime Learning Credit. Here are the key features of the credit:– The major difference is that there is no limit on the years that the Lifetime Learning Credit can be claimed as long as the student is eligible.– It is available for the years that the qualified student will take for post-secondary education and courses that are taken in order to improve or acquire job skills.– The qualified student need not be pursuing any degree or a recognized education credential.– The complete credit is available to taxpayers that are declared eligible as long as they make below $52,000 or for married couples filing together – $104,000. Anything above these mentioned amounts results to the credit phasing out quickly.– Expenses that are considered qualified include fees and tuition and books that are related to the course, along with equipment and supplies.– This credit is non-refundable. Therefore, the maximum amount that can be credited is limited to the tax that is paid on the return.– The credit can total up to $2,000 for every student deemed eligible.A student can only claim one kind of education credit for the current tax year. If the college expenses have been paid for more than a student in that year, these students responsible for the payment can take credit. In this situation, one student can claim American Opportunity Credit while the other can obtain the Lifetime Learning Credit. It is important to note that the Lifetime Learning Credit has a cap of $2,000 per tax return.The said credit can be claimed in the individual’s tax return. The individual must have claimed to be exempt as a student. An example of this is when the parents of the students are divorced and the mother claims for the exemption while the father pays for the tuition. The mother will not be able to receive the credit even if the father has made the appropriate payments.Student loan interest deductionGenerally, this is a personal interest that the individuals pay aside from a home mortgage interest. This, however, is not a deductible. Nonetheless, the individual can deduct the interest that has been paid on the student loan that is qualified for the duration of the year. It can also be reduced depending on the income as long as it is subject to tax that reaches the amount of $2,500 even without deductions that are itemized and laid out.Overlooked Ways to Pay College DebtPaying for college is a difficulty for a majority of families and this involves pulling funds from multiple resources, whether it be savings or financial aid. Some parents have already started saving college fund for their children even after they were just born. With many avenues, experts have already acknowledged that it is definitely overwhelming to come up with a financial plan. Whether the child will be heading to college next fall or years from now, here are some ways that have often been overlooked but can definitely cover college costs.Start a 529 PlanIn an ideal scenario, this account should be open even when the child is just young. This is done so that the savings will accrue over a period of time especially if the funds enrolled is an age-based investment. Experts suggest that parents start opening this account even if the student is already in high school.Parents must start saving as early as they can for their offspring’s education. No matter how small the amount is, each cent counts. 529 savings account have tax advantages. This plan is underutilized because not a lot of parents are aware that this is a prospect for paying for college.Applying for a FAFSAFAFSA or Free Application for Federal Student Aid is what determines whether the student qualifies for a scholarship and how much. Filling this out unlocks access to federal aid like Pell Grant or student loans. This is also the form that institutions use so they can deliberate on who among their potential students will receive financial aid.Federal Loan OptionsFederal loans have more flexible repayment options when compared side by side to private loans. An example of this is the Stafford. This is also why students should exhaust the federal options before they even follow from private education loans. However, there are some private student loans that have smaller interest rates than the federal student loans. This also depends on the credit history so the borrower must take into account this factor before even selecting the lender.Financial Aid AwardsColleges, particularly private institutions, must be willing to increase the financial aid packaged based on the need-based aid especially when there is a change in income or there is a special circumstance. There are some situations that the institutions will increase the merit-based aid so that students can enroll in this.ScholarshipStudents can apply for scholarships even when they are already in college. Searching for a scholarship may be a full-time job. Filling out the FAFSA must not be the only action step that students should take. They should not be afraid to go online for random scholarships and go for the one that best fit their profile.There are students who prefer to not rely on their parents for their higher education despite the fact that the latter only want the best for the former. There are some children who feel that it is their responsibility to finance their own education. If this is the case, the student should not drown in debt. Here are ways to prepare for the cost of that degree.Ask parents earlyStudents should not wait in their senior year to inquire from their parents if they are willing to financially contribute for college. If the answer is yes, the student must know how much the parents are willing to offer, whether it be a percentage of the overall cost or the exact dollar amount. It can definitely be an uncomfortable conversation but it is very necessary for the student to know how much support they will be able to receive.The earlier this conversation occurs the better. This gives the student more time on how to go about paying for college.Look into In-State or Community CollegesA community college is a good way to start accumulating those credits and this can be done even before graduating from high school. Doing this can save the student on tuition costs. There are also some students who spend the first two years at a community college and live at home then eventually transfer to a four-year program so that they can save thousands of dollars.In-state colleges are cheaper than out-of-state and private counterparts. For example, the average cost of a community college is $3,520 and tuition at an in-state four-year program is roughly $9,650 whereas a private four-year school can even amount to $33,480.Join the MilitaryThere are students who join the military because they feel that the years of service come with a reasonable trade of graduating college free of debt. For example, the Navy has a sign-on bonus of $40,000 for the College Fund. This added extra money to GI Bill monthly payments.Most branches of the military, including the Air Force, the Navy, the Army, and the National Guard, have education benefits. These cover the over-all costs of the tuition bill along with the loan repayment assistance. It also covers the tuition and $1,000 for every year to pay for the supplies and books.Work During and Even Before CollegeThere are some who work during summer even when they are still in high school. This goes on until they are in college and are home for the summer. Part or full time jobs can already help subsidizing any deficits that are left to cover the college expenses like housing costs and the lifestyle. A gap year before going off to college help position the student in minimizing their debt. There are those who opt to use this time to work and also save for college.As for parents who are more than willing to help pay for their children’s college education, they should already start saving money once the child is born. The cost of college education increases every year and investing in special college savings plan can also help the parents stay ahead of the game so that they are protected against inflation. There are educational plans that provide tax shelters for their funds until the future scholar goes off to college. Then there are also states that offer college savings opportunities, like the Section 529 Education Savings Plan mentioned earlier.Parents can also teach their children financial responsibility. They should have their children be involved in the payment process despite the fact that they have the money to cover the costs. They should let the child understand that it is not a free ride. Encourage them to get a job. Teach them financial responsibility by letting them earn their own money.
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