Tax Choices Limited For Enrolled Agent Work With Graduate School Students

March 26, 2012 by  Filed under: Taxes 

Tax preparation for most individuals with higher education costs renders a choice of two tax credits. Normally, the decision is fairly easy for enrolled agent work with these taxpayers. The American Opportunity Credit is typically more advantageous than the Lifetime Learning Credit.

The maximum American Opportunity Credit is $2,500 compared to $2,000 for the Lifetime Learning Credit. In addition, a single tax return can claim the American Opportunity Credit for multiple students. The maximum for the Lifetime Learning Credit is per tax return. Another key fact to retain from enrolled agent exam review is that up to $1,000 of American Opportunity Credit is refundable.

Some limits exist for the American Opportunity Credit. These restrictions reduce the incidences for using that tax credit as EA solutions with tax returns. Most importantly, the American Opportunity Credit is only available for students in their first four years of advanced education who are working toward a degree or similar certification. Therefore, graduate students are not allowed to claim this tax credit.

Fortunately, the Lifetime Learning Credit is available to rescue some tax benefit for graduate students. A quick check of enrolled agent study material reveals that this credit phases out for tax returns with over $50,000 of income (or $100,000 for joint filers). The credit is eliminated when income exceeds $60,000 (or $120,000 if married filing joint).

A parent for a dependent child takes all education credits. Anyone who is a full-time student under age 24 is eligible for a parent to claim as a dependency exemption under the qualifying child rules. Consequently, grad students still funded by their parents don’t capture any education tax credit if still claimed as dependents.

Parents with a grad school dependent plus another child working toward a degree as an undergrad can claim the Lifetime Credit for the older student and the American Opportunity Credit for the younger child. Assurance of maximizing such arrangements is a valuable component of enrolled agent tax services. Both credits are prohibited for the same student in a single year. However, a tax return can allocate different credits among various students who are dependents on the same return.

The Lifetime Learning Credit is available to several individuals named on a common tax return. The only restriction is the $2,000 ceiling for total expenditures on tuition, fees, and books. Also, this maximum credit is limited to the amount of tax calculated on the return. None of the credit is refundable. The student doesn’t have to pursue a degree to trigger eligibility for the Lifetime Learning Credit. So, simply taking some courses to improve or maintain skills is acceptable.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for enrolled agent work and tax professionals. Access to free questions for the enrolled agent exam review is available on their website.

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