Educational Expenses

Transcription

1 Educational Expenses

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5 Educational Expenses Overview Education credits Tuition and Fees Deduction Student Loan Interest Deduction Work-Related Education Financing Education Options

6 Education Credits The two education tax credits are the Hope Credit and the Lifetime Learning Credit Both credits are nonrefundable, which means they are available to reduce a taxpayer s tax liability, but not below zero

7 Basic Amounts of Education Credits The basic amounts of the Hope and Lifetime Learning credits Hope Credit (per student) 100% of the 1st $1,200 and 50% of the next $1,200 of qualified expenses Up to $1,800 credit per eligible student Lifetime Learning Credit (per tax return) 20% of the first $10,000 of qualified expenses Up to $2,000 credit per return

8 Inflation-Adjusted Phaseout Amounts for Education Credits Hope Credit Lifetime Learning Credit Single Head of Household Qualifying Widow(er) $48,000-$58,000 $48,000-$58,000 Married Filing Jointly $96,000-$116,000 $96,000-$116,000 Married Filing Separately Cannot Claim Cannot Claim

9 What Expenses Qualify? Qualified education expenses incurred for enrollment or attendance at an eligible educational institution for an eligible student Tuition and fees required for enrollment or attendance Eligible student Eligible educational institution

10 Who Claims the Credit? If your dependent is the eligible student and you... Claim an exemption for your dependent Do not claim an exemption for your dependent (whether or not you are eligible to do so) And You or your dependent or a third party paid all qualified expenses for your dependent You or your dependent or a third party paid all qualified expenses Then Only you can claim a credit for qualified expenses paid. Your dependent cannot claim a credit. Only your dependent may claim a credit for qualified expenses paid. You may not claim a credit.

11 Giving Credit to the Dependent Student Nonrefundable credits only benefit a taxpayer who has a tax liability A parent with no tax liability might want to give the credit to the dependent student who does have a tax liability Note that an individual who is entitled to claim another individual as a dependent is not required to do so

12 Tuition and Fees Deduction Clients may claim a deduction (as an adjustment to income) for qualified education expenses they pay for themselves, their spouse, or their dependents claimed on the tax return Beginning with 2007, clients are now required to file the new Form 8917 to take the deduction 2007 Maximum Allowable Deduction for Tuition and Fees Filing Status Modified AGI Maximum Deduction Single Head of Household Qualifying Widow Married Filing Jointly $65,000 and less Up to $4,000 $65,001 through $80,000 Up to $2,000 $130,000 and less Up to $4,000 $130,001 through $160,000 Up to $2,000

13 What Makes a Student Eligible? Hope Credit Lifetime Learning Credit Tuition and Fees Deduction Student is in first two years of postsecondary education at an eligible institution Hope credit has not been claimed for student in any two earlier tax years Student is pursuing an undergraduate degree or other recognized education credential Student is enrolled at least half time for at least one academic period beginning during the year. Student does not have a felony drug conviction on record Enrolled in one or more courses at an eligible institution Enrolled in one or more courses at an eligible institution

14 Student Loan Interest Deduction Taxpayers may deduct up to $2,500 per return for interest paid on qualified student loans The student loan interest deduction is phased out based on filing status and modified adjusted gross income (MAGI) as figured before subtracting any deduction for student loan interest Single Head of Household Qualifying Widow(er) Student Loan Interest Deduction $55,000- $70,000 Married Filing Jointly $115,000- $145,000 Married Filing Separately Cannot Claim

15 Work-Related Education Taxpayers may be allowed a deduction for workrelated education expenses, but the deduction is not available in every situation Qualifying work-related education expenses are deducted as employee business expenses Employee business expenses are subject to the 2%-of-AGI limitation

16 Coverdell Education Savings Accounts Trust or custodial account established to pay qualified education expenses for the account s designated beneficiary Coverdell ESA is managed by a responsible individual who must be a parent or guardian Earnings grow tax free and qualified distributions are tax free Maximum contributions of $2,000 per beneficiary per year

17 Qualified Tuition Program / 529 Plan Allows the contributor to prepay for the beneficiary s tuition Contribute to an account to save for the payment of future education expenses QTP contributions are not deductible on the federal return May be deductible on some state returns Earnings grow tax deferred and qualified distributions are tax free

18 IRAs and Education Distributions can be taken without having to pay the 10% additional tax even though the distribution is taken before the owner reaches age 59 1/2 Qualified education expenses must be paid to an eligible educational institution for the owner, the spouse, or the owner or spouse s children or grandchildren

19 Did You Know H&R Block can assist you in completing the FAFSA form What is FAFSA? Free Application for Federal Student Aid The first financial step towards college Simply bring your tax information to an H&R Block office near you

20 FAFSA To Do s Submit your FAFSA early, but not before January 1, 2009 Sign all FAFSA documentation Bring your SSN and your parents SSN (if you are providing parent information) Driver s License (if you have one) Alien Registration Number (if you are not a U.S. citizen) Previous year federal tax information Records of untaxed income Information on savings, investments and business & farm assets for yourself and your parents (if you are providing parent information)

21 Second Look Exploring Block s Expertise Were your taxes done right? We found errors on 87% of all tax returns we reviewed under this program last tax year Clients who expected a refund and refiled with H&R Block last tax season received an average additional refund of $1,300 Individual results may vary. Additional fees apply if you have us prepare a corrected or amended return. At participating offices.

22 H&R Block Audit Services We offer year-round audit assistance and representation We can help you resolve audit issues, whether it s responding to a letter or representing you at an audit We can help even if we didn t prepare the return Low, flat rates

23 Additional H&R Block Products & Services H&R Block Advantage Service Included with every tax return Tailored for you Advice topics include personal finances, retirement and/or education H&R Block Emerald Savings SM H&R Block Emerald Prepaid MasterCard Get cash Make purchases Reload your card Banking services are offered by H&R Block Bank, a Federal Savings Bank, member FDIC.

24 Q & A

25 Thank You for Your Time Closing Thoughts Attendee information card Additional educational presentations Schedule appointments