5 Tax Breaks for College Costs

Besides scholarships (tax-free up to the cost of tuition and course-related expenses, such as books and supplies), there are several tax breaks designed to ease the effects of college costs, whether you’re saving to send your kids to college, paying for yourself, or considering some graduate work. The following 5 tips can help you take advantage of college tuition tax breaks available to you.

1. The Student Loan Interest Deduction
Student loan interest is interest you paid during the year on a qualified student loan. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

You claim this deduction as an adjustment to income, so you don’t need to itemize your deductions on Form 1040, Schedule A, Itemized Deductions.

You can claim the deduction if all of the following apply:
• You paid interest on a qualified student loan in tax year 2016;
• You’re legally obligated to pay interest on a qualified student loan;
• Your filing status isn’t married filing separately;
• Your MAGI is less than a specified amount which is set annually; and
• You or your spouse, if filing jointly, can’t be claimed as dependents on someone else’s return.

A qualified student loan is a loan you took out solely to pay qualified higher education expenses that were:
• For you, your spouse, or a person who was your dependent when you took out the loan;
• For education provided during an academic period for an eligible student; and
• Paid or incurred within a reasonable period of time before or after you took out the loan.

If you paid $600 or more of interest on a qualified student loan during the year, you’ll receive a Form 1098-E, Student Loan Interest Statement, from the entity to which you paid the student loan interest.

2. 529 Savings Plans
529 plans let your earnings escape federal tax completely if the withdrawals are used for qualified college expenses, including tuition, fees, and room and board. Two-thirds of states give residents a tax deduction or another tax break for contributions. You are may invest in other states’ 529 plans, although to get the tax break, you’ll usually need to invest in your home state.

The attractiveness of 529 plans lies in their easy access as well as the tax benefits the provide. The plans set no income limit and have a high limit on contributions. If your kid skips college, you can change the beneficiary to a sibling or other relative without losing the tax break. But make sure to use the money for non-college expenses or you’ll be on the hook for taxes and a penalty on earnings.

3. The American Opportunity Tax Credit
The American Opportunity Tax Credit is worth up to $2,500 per student for each of the first 4 years of college. A student must be enrolled at least half-time for one academic period during the year in a program leading to a degree, certificate or other recognized educational credential.To qualify for full credit, your adjusted gross income must be less than $80,000 if you are single or filing as head of household, or less than $160,000 if you are married filing jointly. The size of the credit begins to phase out as your income rises, disappearing entirely for singles and heads of household earning more than $90,000, and for couples filing jointly earning more than $180,000. Money spent on tuition, fees and books (but not room and board) does count toward the credit. Read More

New Due Date for Filing FBARs

If you have financial interests in, or signature authority over a foreign financial account (bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds), you may be required by the Bank Secrecy Act to report the account annually. Reports are made to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

April 15 is the new annual due date for filing FBARs. Section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the federal income tax filing season.

The Act also establishes a maximum 6-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year; specificRead More

Q: Do I have a choice to file a tax return?

A: Maybe

However the choice is usually not an option.

If you are a U.S. citizen you must file a return if your gross income for the year was at least the combined amount of your filing status standard deduction and your filing status personal exemption(s); for a married couple under 65 that figure would be $20,700 and for a single taxpayer under 65, $10,350.00. Self-employed individuals have to file a tax return if their net earnings from self-employment exceed $400. Other rules apply when it comes to income earned or unearned regarding dependent children.

Gross income

Generally, income is taxable unless it is specifically exempt (not taxed) by law. Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. GrossRead More

Solvent or Insolvent? That’s the Solution For Debt Forgiveness

Solvent: the liquid in which a solute is dissolved to form a solution. No, that doesn’t sound right.

Solvent: having assets in excess of liabilities; able to pay one’s debts. We are getting closer.

Solution: a liquid mixture in which the minor component is uniformly distributed within the major component (the solvent). Nope, now we are getting colder.

Solution: a means of solving a problem or dealing with a difficult situation. Good, getting warmer.

Insolvent: A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. Perfect! That’s what we are talking about.

Insolvency could be the solution for debt forgiveness

If a debt is forgiven or discharged for less than the full amount owed, the debt is considered canceled in the amount that you do not have to pay. Cancellation of a debt may occur if the creditor cannot collect, or gives up on collecting, theRead More

Unfazed By Your Six Figure Tax Bill?

Phase Out

“How would you feel if you had a six-figure tax bill?” a question posed at a meeting of tax professionals recently. Many in attendance responded with an overall negative point-of-view that is until the point was made that you’d need to have a high income to rack-up six-figures in taxes owed. Then the responses changed, “Well sure, I’d love to have the level of income required for me to have to pay six-figures in tax.”

What exactly is the amount of income required to have a six-figure tax bill? In the simplest terms, for a married couple, if their taxable income is approximately $378,000, their tax bill should be slightly over $100,000. But this is the US Tax Code we are talking about, so $378K isn’t exactly the answer; because of phase outs. @HeinkelTaxLaw

What is an IRS ‘Phase Out’

For the purposes of this post, anRead More

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