Tax Preparer Exam Questions Include Details About College Costs

October 25, 2011 by  Filed under: Taxes 

Many families have sons and daughters who recently started college. This season is also when individuals in the tax preparation business devise simple explanations to convey to those parents about education tax benefits. A taxpayer relies upon a tax professional to make the optimal choice among various tax treatments of college costs. The value of that tax preparation help is understood with a brief explanation to parents about the choice.

Several options exist for handling education expenses on a tax return. They are often adjusted temporarily by legislation. In fact, this is exactly what occurred for the 2011 tax year. The American Opportunity Credit still replaces the predecessor Hope Credit for at least a couple more years. Knowledge about this and other tax breaks relating to college costs is needed to answer tax preparer exam questions.

The American Opportunity Credit applies to both full-time and part-time college students. It provides a maximum credit of $2,500 per student, consisting of 100 percent of the first $2,000 of expenses and 25 percent of the next $2,000. This full amount phases out for households with incomes above $90,000 – or $180,000 for joint tax returns. Claiming the American Opportunity Credit requires the student to pursue a degree earning program.

Unlike the Hope Credit, the American Opportunity Credit applies to college expenses that include tuition and fees paid to the school plus necessary classroom supplies. A computer used for college qualifies. In addition, the American Opportunity Credit is available for the first four years of higher education. The Hope Credit applied to only the initial two years.

Up to 40 percent of the American Opportunity Credit may be a refundable credit, meaning it is added to a refund when not applied to any tax liability. However, this refundable portion is not applicable to students under age 18 or who have living parents or who are under 24 while not providing half their own support.

Careful tax preparer study is required of the substantial differences between the American Opportunity Credit and the Lifetime Learning Credit. The latter is available for an unlimited number of years. The credit is 20 percent of the first $10,000 of tuition and fees paid to the college. This credit phases out for tax returns with incomes exceeding $50,000 for individuals or $100,000 for joint filers. Full elimination of the Lifetime Learning Credit occurs with income over $60,000 for individuals or $120,000 for joint returns. Eligible students for the Lifetime Learning Credit are not required to pursue a degree.

When a tax preparer review of case details indicates that all education credits are not applicable, the tuition and fees deduction is a final resort. This is actually an adjustment to income that lowers AGI. It is available for individuals with income under $80,000 or joint filers with income under $160,000. The deduction maximum is $4,000. No other limitations are imposed on the tuition and fees deduction.

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 tax preparation business and tax professionals. Access to free questions for the tax preparation help is available on their website.

Article Source:

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Prev Post:
Next Post: