Tag Archives: student

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.

The College Student Tax Scam

School is well under way and the IRS has reminded us to pay attention to a new scam that is targeting students and their parents. Here is what you need to know.

  • The scam – Callers will contact your student and demand payment of an unpaid Student Tax. This tax does not exist. The contact is typically via phone call, but can take the form of a realistic looking email.
  • It will seem real – The caller will say they are from the IRS. They will have your student’s name and some of their personal information stolen from another source. There may be a caller ID displaying IRS. They will often call multiple times and may even threaten arrest.
  • Their goal – To get your unwary student (or you – the unwary parent) to provide them with payment through a prepaid debit card, credit card, or other type of gift card.
  • What to do – If this happens to you, hang up. If they call back, do not answer. Make sure your students are aware that this may happen and they should inform you immediately of the call. Remember, the IRS NEVER initiates a tax question with a phone call or email. You can also report the scam to the Treasury Inspector General for Tax Administration: IRS Impersonation Scam Reporting Form

 Your data must be stolen

Should this scam occur, one thing is certain. Personal data has been stolen. If you receive this scam call, you may be targeted for other scams. So be alert and consider reviewing your credit reports to ensure someone is not trying to access your identity in other ways.

Ideas to Manage the Burden of Student Debt

Each year a new crop of graduating high school seniors begin their collegiate careers while college graduates consider the opportunities that graduate school provides. As a result, the mountain of student debt continues to build. While this debt is unavoidable, here are some ideas to help make that mountain a little less insurmountable.

Know the note – Not all student debt is created equal. Understanding the terms of all your student loans is important. With this knowledge, select the correct loan option and know which loan to pay first. Things you should know about each loan include:

  • The interest rate
  • The term of the loan
  • Amount of any up-front fees
  • Pre-payment penalties (if any)
  • When interest and payments start
  • Payment amounts
  • Payment flexibility
  • How interest is calculated

Suggestion: Create a spreadsheet with a student loan in each column. Then note the variables from this list under each note. It will create a strong visual of your student loan situation.

Pay the interest – Some student loans accrue interest while you are in school. With the compounding of this interest, your student loan amount continues to grow with each passing year before repayment begins. Banks love this. You should not.

Suggestion: Figure out how to make the interest payments while in school. This will not only lock the amount you owe, it will reduce the amount of interest payments you will be paying on your interest.

Pay a little extra in the early days – The math of loans benefits banks in the early years of the note. This is because the vast majority of interest is paid by you in the first years of repayment. The last year of your loan repayment is primarily principal payments.

Suggestion: Pay extra every month as soon as payments start. While this seems impossible as you enter the workforce, even $10 extra a month can dramatically reduce the amount of total payments you make over the life of your loan.

 While student debt is an unavoidable outcome of getting a great education, it can be minimized if actively managed. Remember small changes can yield results if planned for in advance.