Tag Archives: education

Ace the FAFSA

The Free Application for Federal Student Aid (FAFSA) is a tool students use to apply for more than $120 billion in federal funds. Unfortunately, each year many students miss out. A report from NerdWallet estimates that $1,861 per eligible high school graduate of free federal grant money went unused during 2014 because they did not complete a FAFSA.

Even if you don’t think you or your child qualify for federal aid, filling out a FAFSA is important because it could be used to determine eligibility for nonfederal aid and private funds.

FAFSA available Oct. 1

Previously, the FAFSA was not available until January. A recent change now makes the application available Oct. 1. This is because the 2018-19 FAFSA can be completed with your 2016 tax information.

Avoid FAFSA mistakes

Don’t forgo federal student aid by making one of the following common filing mistakes:

Mistake: Not reading the instructions or questions

Tip: Answer all the questions, even if the answer is zero. If left blank, a question will be considered unanswered. Here are some quick tips:

  • Write dollar amounts without cents.
  • “You” and “your” refer to the student, not the parents.
  • Provide parent information if you or your child is considered a dependent of someone else.
  • Understand the definitions of key FAFSA language including: legal guardianship, parent and household size.
  • Use the available FAQs and FAFSA Information Center.

Mistake: Incorrect, incomplete or nonmatching data

Tip: Complete the FAFSA online. Although you can complete the FAFSA on paper, it takes only three to five days to process when submitted electronically. The online version has built-in safeguards that identify and prevent many errors. Plus, the IRS Data Retrieval Tool can import information directly from your tax return. Logging in with a Federal Student Aid (FSA) ID will automatically load basic information (e.g., name, birthdate, and Social Security number), reducing the likelihood of typos. You’ll even receive confirmation of receipt once you submit your online application.

Mistake: Not filing on time

Tip: Note the new October FAFSA filing start date and get the application submitted as soon as possible. The sooner you or your child gets started, the higher the likelihood of being awarded funds, since many are distributed on a first-come, first-served basis.

Remember, students need to complete a FAFSA each year because eligibility does not carry over and can vary based on circumstances. Students can use the FAFSA Web Worksheet now to gather and organize the data needed for their application, available at www.fafsa.gov.

Say Goodbye to the College Tuition Deduction

It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive.

But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that often offer a more valuable tax break:

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).

Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of 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.

So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction was generally the only means you had to reduce your tax bill.

But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives.

Going Back to College? How to Deduct Tuition Costs

Can you deduct the cost of going back to a school to get ahead in your career? It depends.

The tax law is clear on this issue whether you’re returning to school full-time or just enrolling in a summer refresher course. To qualify for deductions, you must meet one of these two requirements.

  1. The education is required by your employer or the law to keep your present job or present work status. In other words, the education must serve a legitimate business interest.
  1. The education maintains or improves skills needed in your present job.

That seems easy enough, but you’re not done quite yet. Even if you meet one of the two requirements, you still flunk out if either:

  • The education is needed to meet the minimum educational requirements of your present trade or business.
  • The education is part of as study program that will qualify you for a new trade or business.

This is where things often become blurry. If you take courses that could ultimately lead to an advanced degree, like an MBA or law or medical degree, the IRS could say that the studies qualify you for a new trade or business, even if you don’t intend to switch your field. Not surprisingly, this issue is often contested in the courts. Despite a handful of isolated incidents, the IRS usually prevails.

Assuming that the coursework doesn’t qualify you for a new trade or business – expenses such as tuition, books, laptops, lab fees, supplies and similar items; costs of writing, researching and preparing term papers; and some limited travel and transportation expenses may be deductible.

Even if you qualify, however, business education expenses are deducted as miscellaneous expenses subject to the usual threshold of 2% of adjusted gross income (AGI). If you don’t clear this 2%-of-AGI floor, none of the expenses are deductible on your tax return.

These are hard lessons for many taxpayers to learn. When possible, other alternatives such as using an employer-sponsored educational assistance plan may be preferable. Under such a plan, an employer can provide up to $5,250 of tax-free educational benefits to each employee.