Alternatives to the College Tuition Deduction

Alternatives to the College Tuition Deduction Category: Deductions

Now that college students are settling into their first weeks of school, it's important for parents and students to recall that the $4,000 tuition and fees deduction they may have relied on in past years is no longer available in 2017. The good news is that there are alternatives. Here are two of the more popular education credits: Alternative No. 1: The AOTC The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles). Alternative No. 2: The Lifetime Learning Credit The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of qualified tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $132,000 per year (or singles making $66,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student. Credits usually beat deductions Both the AOTC and the Lifetime Learning Credit are generally more valuable than the expired tuition and fees deduction, because as credits they reduce your income tax directly, while the deduction merely reduced how much of your income is taxed. In addition to the two alternative education credits, there are many other tax benefits that reduce the cost of education. This includes breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives. Please call if you'd like an overview of the alternatives available to you.

Rejeted e-filed returns

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Rejected! What to do if your e-filed tax return is rejected by the IRS Category: Miscellaneous

More than 90% of individual tax returns are now filed electronically, and usually the process goes smoothly. However, when an e-filed tax return is rejected, e-filing can become more complicated. Common causes for rejected tax returns Simple filing errors. Most rejections are caused by things such as misspellings, typos on Social Security numbers, or missing forms. When an e-filed tax return is rejected the IRS e-filing system sends back reject codes. These codes are specific to lines on the tax return and descriptions of the problem are readily available. Most of these errors can easily be corrected. Dependent Errors. This error occurs when someone else has claimed a dependent on a previously filed tax return. This often occurs with divorced and unmarried couples each claiming the same child on their tax return. The IRS does not take sides in this situation, they simply take the earlier filed return and reject any subsequent returns. Identity Fraud. Someone else has already filed a tax return using your Social Security number. What to do Most errors are simple, are easily corrected, and your tax return is resubmitted for e-filing without much additional delay. However there are two instances that require your immediate attention. When either of these occur, you will need to file your tax return via the mail and work to correct the error for future tax filings. 1. Dependent Errors. A dependent can only be claimed on one tax return. If a dependent is already claimed on another individual's tax return you will need to provide proof that the dependent belongs on your return. If this happens, contact the other party who claimed your dependent and ask them to amend their return. Let them know that you’re filing your tax return correctly claiming the dependent. Your filing will target both tax returns for a potential IRS audit. This audit risk often is enough motivation to correct the problem. 2. Identity Fraud. Criminals using stolen information submit tax returns electronically in an effort to steal your tax withholdings. Fraudulently claimed refunds are then automatically deposited into thieves' bank accounts. Unfortunately, you may discover the theft when your e-filed tax return is rejected. If this happens to you: ⇒ File a paper tax return. ⇒ Include form 14039: Identity Theft Affidavit with your tax return. ⇒ Confirm your identity using the IRS Identity Verification Service or by calling the IRS. ⇒ Mail your tax return using Certified Mail with Return Receipt Requested so you are certain of timely delivery. ⇒ Immediately take steps to protect your financial information. The following link will take you to the Federal Trade Commission's identity theft area for recommended steps to protect yourself. FTC Identity Theft Assistance While solving the cause for a rejected e-filed tax return can be a headache, the sooner the problem is addressed the sooner your refund can be received.

There's Still Time to Fund Your IRA

Category: Retirement

Remember that you have until you file your tax return to make a contribution to a Traditional IRA or Roth IRA for the 2016 tax year. The annual maximum contribution amount is $5,500 or $6,500 if you are age 50 or over. However, if you or your spouse are an active participant in an employer's qualified retirement plan, you may not be able to contribute the maximum amount. It depends on whether your modified adjusted gross income (MAGI) exceeds certain income thresholds. The limits for both Traditional and Roth IRAs are: 2016 Note: Married IRA limits depend on whether either you, your spouse or both of you participate in a qualified employer provided retirement plan. If married filing separate and either spouse participates in an employer's qualified plan, the income phaseout to contribute is $0 - $10,000. How does the phase out work? If your income is below the "full contribution" amount noted above, you can contribute up to the maximum annual contribution. If your income is above the "phase out complete" amount, you cannot make tax-advantaged contributions separate from your employer plan. If your income falls between these ranges, this is how you calculate the reduced amount you can contribute: Subtract your income from the higher (phase out complete) amount to get your contribution income potential. Next calculate the phase-out range. Divide your contribution income potential by the phase-out range. Take the result times your maximum annual contribution amount. Example: Roth IRA contribution limit for a single person, age 40 with MAGI of $122,000; $10,000 contribution income potential (132,000-122,000); divided by phase-out range of $15,000 ($132,000 – 117,000); 10,000/15,000= .666 x $5,500 = $3,663 2016 ROTH IRA contribution limit. Rounding rules apply. If it's too late for you to make a 2016 contribution, it’s not too late to plan for 2017. Here are the limits for 2017. 2017 A final thought If your income is too high to take advantage of these IRAs you can always make non-deductible contributions to a retirement account. While the contributions are taxed, tax on the earnings is deferred until they are withdrawn.

Tax Tips 2017 #1