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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Lifetime Learning Credit’

Back-to-School Tax Credits

Posted by William Byrnes on September 15, 2014

IRS logoThe IRS revealed in its Summertime Tax Tip 2014-23 that some of the costs a taxpayer pays for higher education can lead to a taxpayer owing less tax.  Here are several important tax facts about “education tax credits” from the IRS:

  • American Opportunity Tax Credit.  The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means a taxpayer may be able to get up to $1,000 of the credit as a refund payment from the IRS, even if no tax is owed.
  • Lifetime Learning Credit.  With the LLC, a taxpayer may be able to claim a tax credit of up to $2,000 on the federal tax return. There is no limit on the number of years the LLC can be claimed for an eligible student.
  • One credit per student.  A taxpayer may claim only one type of education credit per student on the federal tax return each year. If more than one student qualifies for a credit in the same year, then the taxpayer can claim a different credit for each student.
  • Qualified expenses.  A taxpayer may include qualified expenses to calculate the credit.  This may include amounts paid for tuition, fees and other related expenses for an eligible student.
  • Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T.  In most cases, a taxpayer will receive Form 1098-T, Tuition Statement, from the school.  This form reports the qualified expenses to the IRS and to the taxpayer. A taxpayer may notice that the amount shown on the form is different than the amount actually paid.  Some of the paid costs may not appear on Form 1098-T.  For example, the cost of textbooks may not appear on the form, but these textbook costs still may be able to be claimed as part of the credit.
  • Nonresident alien.  A F-1 student visa usually files a federal tax return as a nonresident alien.  A nonresident alien may not claim an education tax credit for any part of the tax year unless electing to be treated as a resident alien for federal tax purposes.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on the taxpayer’s income.

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How Will The Lifetime Learning Credit Help Pay My Higher Education Tuition?

Posted by William Byrnes on May 15, 2014

The IRS’ Tax Tip 2014-41 answers this question, in conjunction with its > online publication < .

The Lifetime Learning Credit is:

  • Limited to $2,000 per tax return, per year.
  • For all years of higher education, including classes for learning or improving job skills.
  • Limited to the amount of the tax due for that year.
  • For the cost of tuition and required fees, plus books, supplies and equipment.
  • The taxpayer’s school should provide a Form 1098-T, Tuition Statement, showing expenses for the year.
  • File Form 8863, Education Credits, to claim these credits on the tax return.
  • The credit is subject to income limits that could reduce the credit amount.
Maximum credit Up to $2,000 credit per return
Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;
$63,000 if single, head of household, or qualifying widow(er)
Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills
Number of tax years credit available Available for an unlimited number of years
Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential
Number of courses Available for one or more courses
Felony drug conviction Felony drug convictions do not make the student ineligible
Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment)
Payments for academic periods Payments made in 2014 for academic periods beginning in 2014 or beginning in the first 3 months of 2015


How does a tax credit work?

A tax credit reduces the amount of income tax a taxpayer may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce tax owed to zero, but if the credit is more than the tax owing then the excess will not be refunded.

Effect of the Amount of Your Income on the Amount of Your Credit

The amount of the lifetime learning credit is phased out (gradually reduced) if MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). For 2013, by example, a taxpayer cannot claim a lifetime learning credit if MAGI is $63,000 or more ($127,000 or more if a joint tax return).
   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on the federal income tax return.  MAGI is the AGI on line 38 of the 1040 form, modified by adding back any:

  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Foreign housing deduction,
  4. Exclusion of income by bona fide residents of American Samoa, and
  5. Exclusion of income by bona fide residents of Puerto Rico.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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2011 Tax Rates, Credits, and Deduction Amounts

Posted by William Byrnes on February 2, 2011

Child Tax Credit—for taxable years beginning in 2011, the value used in 24(d)(1)(B)(i) to determine the amount of credit under § 24 that may be refundable is $3,000.

Hope Scholarship, American Opportunity, and Lifetime Learning Credits—for taxable years beginning in 2011, the Hope Scholarship Credit under § 25A(b)(1), as increased under § 25A(i) (the American Opportunity Tax Credit), is an amount equal to 100 percent of qualified tuition and related expenses not in excess of $2,000 plus 25 percent of those expenses in excess of $2,000, but not in excess of $4,000. Accordingly, the maximum Hope Scholarship Credit allowable under § 25A(b)(1) for taxable years beginning in 2011 is $2,500.

In addition, for taxable years beginning in 2011, a taxpayer’s modified adjusted gross income in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction under § 25A(d)(2) in the amount of the Hope Scholarship Credit otherwise allowable under § 25A(a)(1). For taxable years beginning in 2011, a taxpayer’s modified adjusted gross income in excess of $51,000 ($102,000 for a joint return) is used to determine the reduction under § 25A(d)(2) in the amount of the Lifetime Learning Credit otherwise allowable under § 25A(a)(2).

Standard Deduction—In general, for taxable years beginning in 2011, the standard deduction amounts under § 63(c)(2) are as follows:  To read this article excerpted above, please access AdvisorFYI


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