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Tax Benefits for Higher EducationEASFAA 2014

Stephen G BrownFordham Law SchoolWho Cares !

Joint Committee on Taxation$78.9 billion in forgone tax revenue2011- 2015Or is it financial aid?Need?Winning votes?Good for country ?Tax TreatmentIncentives for current expensesImpact in following year tax dueStudent loan tax treatmentIncentives for savingTax CreditReduces amount owed in taxesDollar by dollar basisMay be refundable or not

AOTCLLC

Tax DeductionReduces taxable income

above the line or itemizedDifferent impactStandard deduction versus itemizing

Tuition and fees - not extended yet for 2014 (S 2260)Student Loan InterestTax ExemptionLike deduction, they reduce taxable incomeFixed dollar amountPersonal exemption for parents of students 19-23

Continues ability to claim dependentsTax ExclusionLike deduction in that taxable income reducedIRC explicitly excludes from income

117c qualified scholarshipEducational expenses, etcCurrent ExpensesIs my Scholarship Taxable?117c qualified ScholarshipDegree candidateQualified educational expensesTuition, fees, books, supplies, equipmentNot compensation for teaching, research, workEmployer tuition benefitsNot only for schoolsBenefit often awarded through HRUndergrad no tax implications for education employeesGrad no tax if perform teaching or researchTaxed above $5,250May require certain gradesPayment may be after completion of the courseWaiting period? Commitment after payment?May require courses related to jobQualified Tuition ReductionReceived from eligible education institutionUsed at eligible education institutionNeed not be the sameEmployee or dependantUndergraduate not taxed

The Tuition Exchange tmConsortium of IHEs600 schoolsWorked mainly through HR/Benefits officeOffers tuition benefits at many institutionsTies to school policiesSchools require applicationBalance of tradeAdmissions requirementsTuition and Fees DeductionEXPIRED DECEMBER 31 2013Not if AOTC or LLCNot if married filing separatelyMAGI $80,000 ($160,000)$4,000 income deductionTuition and related expenses paid to institutionNot required matriculationTuition and FeesIncome from $65k - $80k (130k-160k)Max deduction $2,000Income below $65k ($130k)Max deduction $4,000

Form 8917IRC 222S 2260 may extend to 2015?Business Deductionfor Work Related ExpensesMust be workingMust itemize or Must file Schedule C or FMust be Qualifying Work Related or maintain or improve skillsRequired by employer or law to keep jobServe bona fide business purposeNot needed to meet minimum requirements for current jobDoes not qualify for a new trade or businessQualifying Work RelatedMust be Qualifying Work Related or maintain or improve skillsRequired by employer or law to keep jobServe bona fide business purposeNot needed to meet minimum requirements for current jobDoes not qualify for a new trade or businessMaintain or Improve skillsRefresherCurrent developmentsAcademic Tuition and FeesBooks and SuppliesTransportation--Work to school and school to homeTravelIs this session deductible?

American Opportunity Tax CreditTAX CREDIT up to $2,500 (until December 2017)MAGI Limits $90,000 single, $180,000 married/jointUp to 40% refundableFirst 4 yearsOnly 4 yearsTuition, fees and booksNo LLC or T & F deductionLoans used for Qualified expenses countNot Coverdell exemption

American Opportunity credit 100% of first $2,000 in expenses25% of next $2,000Reduction for MAGI $80-90k ($160-180k)Form 8863IRC 25A40% (up to $1000) refundable

Renewed under American Taxpayer Relief Act of 2012Lifetime Learning CreditTAX CREDIT of up to $2,000Cannot be combined With American Opportunity Tax CreditMAGI limits$62,000 (s) $124,000 Married JointNon Refundable, Unlimited yearsNo matriculation requiredTuition and fees and books paid to institution$20% of first $10,000Reduction at $52 62k ($104-124k)Form 8863

Tax Treatments of Student LoansStudent Loan Interest DeductionQualified Student LoanReduce Income by up to $2,500Enrolled at least half time when borrowedMAGI $75,000 ($150,000)Not from a related personTuition, fees, housing, books, transportation (COA)Amortize fees ( but not reported on 1098-E)Voluntary interests OKStudent Loan interestPhaseouts $60-75k ($125-150k)IRC 221

Directly deductibleLine 33 1040Line 18 1040 ALine 9 1040 EZ

Exclusion of Loan Forgiveness108(f)School based LRAPSFederal Public Service Loan Forgiveness ProgramCancellation of a loan normally a taxable event under 108If pursuant to a programCollege Savings IncentivesUGMA/UTMAUniform Gift to Minors ActUniform Trust for MinorsInvolves planningIrrevocableReverts to minor at age of majorityAsset? For FAFSA reporting owned by studentIncome excluded if transferred directly to institutionEstate/Gift ExclusionNot counted towards estate or annual gift limitsMust be paid directly to IHEEarly IRA Distribution penaltyNot subject to 10% penaltyMay be subject to regular taxationTuition and FeesBooks, supplies, equipmentSpecial needsRoom and board (if registered at least half time)

Education Savings Bond InterestPhaseouts MAGI $71,100 and $86,100$106,650 to $136,650 married jointlySeries EE issued after 1989 or series IOwner older than 24 at bond issue dateOnly for DENENDENT for whom you claim exemption on tax returnTuition and feesForm 8515 QTP (529) PlansSection 529 of the Internal Revenue CodeQualified Tuition ProgramsPre-paid tuition or college savingsAllows anyone to set up a plan for beneficiarySponsored by states in cooperation with investment firmsLarge selection of investmentsAccrues tax free and withdrawals federal tax free for at least half timeTuition and fees Room and boardBooks, computerSpecial needs

QTP (529) PlansAccrues tax free and withdrawals federal tax free for at least half timeTuition and fees Room and boardBooks, computerSpecial needs

Transfer to other family member QTP

Coverdell Education Savings AccountSection 530 of IRCMany investment optionsBeneficiary must be under 18 when set up or special needs$2,000 annual limitAccrues tax free Tax free withdrawals for educational expensesMust liquidate at age 30Contribution limits based on contributors MAGI

Coverdell ESAMAGI less than $110,000 ($220,000)MAGI = AGI for most taxpayersDistributions tax free for ADJUSTED Qualified Educational ExpensesK-12 and higher education expenses

Repeal of 108(f) ?Renewability of Tuition and Fees deductionTax on tuition benefits < $5,250? Have I exhausted you yet?

QuestionsCommentsSnide Remarks

Contact InformationStephen BrownAssistant DeanFordham Lawsbrown@law.fordham.edu212 636 7178