• Education Credits Aren’t Just For Children’s Tuition

    6 March 2017
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    Many people do not realize that education credits are not only available for your child’s tuition. Instead, they are also available for you, your spouse, or your dependents. Even if you attend school part-time, these credits may still be available.

    There are two education-related credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). For either credit, the student must be enrolled in an eligible educational institution for at least one academic period (semester, trimester or quarter) during the year. An eligible educational institution is any accredited public, nonprofit, or proprietary post-secondary institution that can participate in the U.S. Department of Education’s student aid programs.

    The credits phase out for higher-income taxpayers who are married filing jointly (MFJ) or who are unmarried. Those who are married filing separately (MFS) do not qualify for either credit.

    The following table provides the qualifications for both credits:

     

    QUALIFICATIONS AOTC LLC
    Allowance Period First 4 years of post-secondary education Any post-secondary education for any number of years
    Enrollment Must be considered at least a half-time student by the educational institution Not required to be enrolled at least half-time
    Program Type Must be pursuing a program leading to a degree or another recognized educational credential Not required to be enrolled for the purpose of obtaining a degree or other credential
    Credit Applied Per student Per family
    Credit Amount 100% of the first $2,000 and 25% of the next $2,000 in qualified expenses 20% of up to $10,000 in qualified expenses
    Qualified Expenses Qualified tuition and related expenses, which include books, supplies and equipment required for enrollment or attendance Qualified tuition and related expenses; the books, supplies and equipment must be purchased from the educational institution
    High Income Phase-out Based upon filing status and adjusted gross income (inflation-adjusted annually; 2017 amounts shown) MFJ: $160,000 to $180,000MFS: No credit allowedUnmarried: $80,000 to $90,000 MFJ: $112,000 to $132,00MFS: No credit allowedUnmarried: $56,000 to $66,000
    Refundable* Partially; 40% of the credit is treated as refundable No

    *Generally, credits are nonrefundable, meaning that they can only be used to offset your tax liability; any amount exceeding your current-year tax liability is lost. However, unlike other credits, the AOTC is partially refundable in most cases.

    Many individuals who both work and attend school can be enrolled less than halftime and still qualify for the LLC.

    Another interesting twist to education credits is that the taxpayer who qualifies for and claims the student’s exemption for the year gets the credit—even if someone else pays the expenses. Thus, for example, even if a noncustodial parent pays a child’s college expenses, the custodial parent gets the credit if he or she is otherwise qualified. The same applies when grandparents help pay for their grandchild’s education; the grandparents do not qualify for the credit unless they, and not the child’s parents, claim the student as a dependent.

    Generally, the educational institution sends a Form 1098-T to the taxpayer (or dependent); this includes the information necessary to complete the IRS form and claim the credit. Unless the IRS has exempted the educational institution from having to file a 1098-T, the law requires the taxpayer to have this 1098-T in hand to claim either of the credits.

    If you have questions about how this these education tax credit provisions apply to you, please give Dagley & Co. a call.

     

     

     

     

     

     

     

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  • Excited About the Social Security Benefits Increase for 2017?

    30 December 2016
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    This Sunday begins what we’ve all been waiting for – 2017. In the New Year, the Social Security Administration (SSA) announced that Social Security benefits will be revised for a cost-of-living adjustment (COLA) increase of 0.3%. At the beginning of 2016, there was only a 0% increase. But, don’t get too excited too quickly, as the typical adult receiving benefits will see only a $4.00 increase in his/her monthly check.

    At the same time, the SSA bumped the maximum amount of earnings subject to the Social Security tax to $127,200, up from the current $118,500, an increase of 7.34%. Only about 12 million individuals will be affected by that increase since most American wage earners make less than the $127,200 maximum, and thus the increase will be borne by the 12 million higher-income taxpayers.

    The COLA is supposed to ensure that people receiving Social Security benefits continue to have the same purchasing power from one year to the next without regard to inflation. Older adults in particular need this inflation protection since their savings and other income tends to fall as they age, including their pensions, and their dependence on Social Security increases. The meager increase is due in part to the fact that the SSA uses a different consumer price index (CPI), which is much lower than the CPI used to adjust tax rates. It’s clear that the SSA’s CPI is not delivering adequate inflation protection to older adults.

    This is overshadowed by the fact that the Medicare Trustees in their June report cautioned that there could be a substantial increase in the Medicare Part B Premium for those currently paying $121.80 a month. These folks, whose premiums went up by over 16% for 2016, could see another increase that would bring their monthly premium to as much as $149, an increase of over 20% for 2017.

    If you are helping an elderly relative with their money situation, there also may be an opportunity for some tax benefits. Please call Dagley & Co. for some assistance as soon as possible.

     

     

     

     

     

     

     

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