Quick Tax Question re Tuition Deduction

[TromboneAl]

Where does the tuition deduction go if you don't itemize deductions (i.e. if you take the standard deduction)?

I'm checking the return my CPA did, and I don't find it.

 

[Sam]

Line 50 on form 1040-2006, "Education credits"?

 

[TromboneAl]

No, I'm looking for the deductions.

 

[justin]

No, I'm looking for the deductions.

I just checked and didn't see it on the 2006 1040 form. They must have phased it out for 2006?? It was on line 34 in 2005.

 

[REWahoo]

Nope, it is still there on line 50. Note that it is a credit, not a deduction.

If your daughter is a freshman or sophomore, be sure the Form 8863 (Education Credits) completed for Hope credits, not the Lifetime Learning credit. The Hope credit is good for only the first two years, but gives a higher credit.

(REW, fresh from a weeklong tax prep training class, with just enough knowledge to be dangerous... )

 

[justin]

Nope, it is still there on line 50. Note that it is a credit, not a deduction.

In years past, you had the choice between a deduction (up to $3000 I think?) or a credit (hope or lifelong), but not both. Is that still the case? I don't know how you could take a deduction on line 50, when your taxable income is tallied up above that on the form. My first impression is that only credits are allowed this year, and not deductions.

 

[REWahoo]

My first impression is that only credits are allowed this year, and not deductions.

Although we did go over a list of changes for 2006 in the training class, they made no mention of this. However, the only deduction we learned about relating to education was for student loan interest, on line 33. All tuition related adjustments discussed were linked to the Education credits on line 50.

 

[eridanus]

The tuition deductions were a late December law. The current forms from the IRS don't reflect the change.

 

[REWahoo]

The tuition deductions were a late December law. The current forms from the IRS don't reflect the change.

Yup. This from the IRS website:

Higher Education Tuition and Fees Deduction

*Taxpayers must file Form 1040 to take this deduction for up to $4,000 of tuition and fees paid to a post-secondary institution. It cannot be claimed on Form 1040A.

* The deduction for tuition and fees will be claimed on Form 1040, line 35, “Domestic production activities deduction.” Enter "T" on the blank space to the left of that line entry if claiming the tuition and fees deduction, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction.

 

[samclem]

http://www.irs.gov/publications/p970/ch06.html

Here's more on the deduction. Worth up to $4000 off your taxable income, and you don't have to itemize. This just expands on te info REW already provided.

 

[TromboneAl]

Thanks for the info. I think my CPA either missed that, or didn't enter it because we're not paying any taxes on income this year anyway.

REW, why are you taking a training course?? You're not going back to work, are you?

 

[REWahoo]

REW, why are you taking a training course?? You're not going back to work, are you?

Heck no! I volunteered to assist a group who does free tax returns for the low income and elderly. Since I qualify on both counts, I figured I might as well join in.

 

[Sam]

http://www.irs.gov/publications/p970/ch06.html

Here's more on the deduction. Worth up to $4000 off your taxable income, and you don't have to itemize. This just expands on te info REW already provided.

Is this for 2005 or 2006?

 

[samclem]

Is this for 2005 or 2006?

http://www.irs.gov/formspubs/article/0,,id=109876,00.html#tuition_2006

The info at the link above says, in part:

Tuition and Fees Deduction

You may be able to deduct qualified tuition and fees paid during the year for yourself, your spouse, or your dependent. This provision, which had expired for tax years after 2005, has been extended through tax year 2007. (emphasis added)

(Lots of other junk . . . )

How the deduction is claimed. You must file Form 1040 to take this deduction. The deduction is claimed on Form 1040, line 35, “Domestic production activities deduction.” Enter "T" on the line to the left of that line entry if claiming the deduction for tuition and fees, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," you must attach a statement with a breakdown of the amount claimed for each deduction.

More information. See chapter 6 of Publication 970 for more information about this deduction.
Tuition and Fees Deduction Worksheet

(tables, guidance blah, blah)


Note. Do not include this amount in figuring any other deduction on your return (such as on Schedule A, C, E, etc.).


Tax code--ugghh! National Retail Sales Tax--yes!!

 

[cute fuzzy bunny]

National Retail Sales Tax--yes!!

Uhh...NO!!! I finally figured out how to pay almost no income tax, but I have absolutely no chance of figuring out how to stop buying stuff!

But they'll switch to this the minute I start withdrawing from my Roth

 

[Sam]

http://www.irs.gov/formspubs/article/0,,id=109876,00.html#tuition_2006

The info at the link above says, in part:

Tuition and Fees Deduction

You may be able to deduct qualified tuition and fees paid during the year for yourself, your spouse, or your dependent. This provision, which had expired for tax years after 2005, has been extended through tax year 2007. (emphasis added)

Thanks.

 

[TromboneAl]

The accountant had left it out, because we were already paying no tax on income. I told him to put it in, because I want to minimize AGI, related to college financial aid.

The accountant had already completed the taxes and mailed me everything.

This is something that's stressful about taxes. You think you've gotten it all taken care of, and then you find something or think of something that changes things.

I didn't do a Roth conversion last year because I wanted the income low for financial aid. But I see now that I could have converted a significant amount of money and paid no tax.

 

[ERD50]

....

If your daughter is a freshman or sophomore, be sure the Form 8863 (Education Credits) completed for Hope credits, not the Lifetime Learning credit. The Hope credit is good for only the first two years, but gives a higher credit.

....

Careful, I keep seeing this comment that the Hope gives a higher credit, so take it as it is only available for the first two years.

Each individual needs to run the numbers and see which is beneficial - the Hope credit is higher under certain ( maybe most) circumstances - but not ALL.

If you have high expenses, the LLC might be better.

For 2005, the lifetime learning credit is generally more advantageous if qualified expenses exceed $7,500.

My notes from 2005 taxes:

Hope maxes out at $1500 on $2000 expenses
LLC maxes out at $2000 on $10,000 expenses (better for us)



There are other limitations on these credits if you have multiple students in the same year. Fun, fun, fun.

-ERD50

edit/add: and these credits also hit limits based on AGI - this is why I had to re-do some of my Roth conversion last year. It is a crime that taxes are so complex. It is near impossible to plan ahead when there are so many interactive tax laws, and they are not even finalized until the year is over. Arghhhhhhhhh!

 

[samclem]

It is near impossible to plan ahead when there are so many interactive tax laws, and they are not even finalized until the year is over. Arghhhhhhhhh!

National Retal Sales Tax! "Make April 15th Just Another Day."
CFB: The NRST in its present incarnation doesn't tax used goods (including houses, cars, etc.). So, just adopt the dumpster-diving/Craig's List/Thrift store lifestyle and you can still pay no taxes! Of course, as Martha pointed out, there'd need to be mechanisms to slow/stop leakage from the "new" to the "used" market.

Okay, back on thread . . .

 

[ERD50]

National Retal Sales Tax! "Make April 15th Just Another Day."
CFB: The NRST in its present incarnation doesn't tax used goods (including houses, cars, etc.). So, just adopt the dumpster-diving/Craig's List/Thrift store lifestyle and you can still pay no taxes! Of course, as Martha pointed out, there'd need to be mechanisms to slow/stop leakage from the "new" to the "used" market.

Okay, back on thread . . .

Well, I don't mean to take this too far, I understand there have been some long, drawn out discussions about a National Sales Tax before. But, even though I do think a NST has merit, I will just add:

The current tax complexity is not "the problem", it is the *symptom* of a much larger problem (our government and voters). Suggesting reform is a bit like telling an obese person 'eat less and exercise more'. They are not going to do it unless they are motivated to do it. Our politicians *love* the power taxes give them - why would they give it up?

It would take the voters to motivate the politicians to change. But, if the voters were smart enough to do that, they would have been smart enough to keep the politicians from passing this mass of complex tax laws to begin with. I just don't see how it can happen. The bottom line, something I think I'm beginning to see more and more clearly, is that most voters believe there is a 'free lunch'. They can get something from the feds, like a college tax credit. But, one way or the other, they pay for it. But, they are fooled into thinking 'free lunch', and they think it is a good thing. But, it is just a circle game, with politicians and their friends taking their cut on each round. On average, we would all be better off with NO deductions, but each individual that gets a deduction thinks he/she is getting a 'free lunch'.

You know, people on this forum, and I agree, have called for better financial education in our high schools. I think there is just one thing they need to do that would be more powerful than all the details put together - just assure that no one graduates w/o understanding that THERE IS NO FREE LUNCH. Once you understand that, you can critique just about any offer out there, from a Nigerian email, to a tax credit - they are all the same, an offer of a 'free lunch'.

And if they did pass an NST, even with some amendments in place to limit other taxes, they will just find another way to screw things up for us in order to favor specific groups that will vote for them. It is what they always do.

"Meet the new boss, same as the old boss." - and that song was not written yesterday. Socrates or Plato probably said the same thing, but I didn't listen to their CD yesterday

Sorry, that got too long.

-ERD50