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EASFAA 2014 Stephen G Brown Fordham Law School Slide 2 Who Cares ! Slide 3 Joint Committee on Taxation $78.9 billion in forgone tax revenue 2011- 2015 Or is it financial aid? Need? Winning votes? Good for country ? Slide 4 Tax Treatment Incentives for current expenses Impact in following year tax due Student loan tax treatment Incentives for saving Slide 5 Tax Credit Reduces amount owed in taxes Dollar by dollar basis May be refundable or not AOTC LLC Slide 6 Tax Deduction Reduces taxable income above the line or itemized Different impact Standard deduction versus itemizing Tuition and fees - not extended yet for 2014 (S 2260) Student Loan Interest Slide 7 Tax Exemption Like deduction, they reduce taxable income Fixed dollar amount Personal exemption for parents of students 19-23 Continues ability to claim dependents Slide 8 Tax Exclusion Like deduction in that taxable income reduced IRC explicitly excludes from income 117c qualified scholarship Educational expenses, etc Slide 9 Current Expenses Slide 10 Is my Scholarship Taxable? 117c qualified Scholarship Degree candidate Qualified educational expenses Tuition, fees, books, supplies, equipment Not compensation for teaching, research, work Slide 11 Employer tuition benefits Not only for schools Benefit often awarded through HR Undergrad no tax implications for education employees Grad no tax if perform teaching or research Taxed above $5,250 May require certain grades Payment may be after completion of the course Waiting period? Commitment after payment? May require courses related to job Slide 12 Qualified Tuition Reduction Received from eligible education institution Used at eligible education institution Need not be the same Employee or dependant Undergraduate not taxed Slide 13 The Tuition Exchange tm Consortium of IHEs 600 schools Worked mainly through HR/Benefits office Offers tuition benefits at many institutions Ties to school policies Schools require application Balance of trade Admissions requirements Slide 14 Tuition and Fees Deduction EXPIRED DECEMBER 31 2013 Not if AOTC or LLC Not if married filing separately MAGI $80,000 ($160,000) $4,000 income deduction Tuition and related expenses paid to institution Not required matriculation Slide 15 Tuition and Fees Income from $65k - $80k (130k-160k) Max deduction $2,000 Income below $65k ($130k) Max deduction $4,000 Form 8917 IRC 222 S 2260 may extend to 2015? Slide 16 Business Deduction for Work Related Expenses Must be working Must itemize or Must file Schedule C or F Must be Qualifying Work Related or maintain or improve skills Required by employer or law to keep job Serve bona fide business purpose Not needed to meet minimum requirements for current job Does not qualify for a new trade or business Slide 17 Qualifying Work Related Must be Qualifying Work Related or maintain or improve skills Required by employer or law to keep job Serve bona fide business purpose Not needed to meet minimum requirements for current job Does not qualify for a new trade or business Slide 18 Maintain or Improve skills Refresher Current developments Academic Tuition and Fees Books and Supplies Transportation--Work to school and school to home TravelIs this session deductible? Slide 19 American Opportunity Tax Credit TAX CREDIT up to $2,500 (until December 2017 ) MAGI Limits $90,000 single, $180,000 married/joint Up to 40% refundable First 4 years Only 4 years Tuition, fees and books No LLC or T & F deduction Loans used for Qualified expenses count Not Coverdell exemption Slide 20 American Opportunity credit 100% of first $2,000 in expenses 25% of next $2,000 Reduction for MAGI $80-90k ($160-180k) Form 8863 IRC 25A 40% (up to $1000) refundable Renewed under American Taxpayer Relief Act of 2012 Slide 21 Lifetime Learning Credit TAX CREDIT of up to $2,000 Cannot be combined With American Opportunity Tax Credit MAGI limits $62,000 (s) $124,000 Married Joint Non Refundable, Unlimited years No matriculation required Tuition and fees and books paid to institution $20% of first $10,000 Reduction at $52 62k ($104-124k) Form 8863 Slide 22 Tax Treatments of Student Loans Slide 23 Student Loan Interest Deduction Qualified Student Loan Reduce Income by up to $2,500 Enrolled at least half time when borrowed MAGI $75,000 ($150,000) Not from a related person Tuition, fees, housing, books, transportation (COA) Amortize fees ( but not reported on 1098-E) Voluntary interests OK Slide 24 Student Loan interest Phaseouts $60-75k ($125-150k) IRC 221 Directly deductible Line 33 1040 Line 18 1040 A Line 9 1040 EZ Slide 25 Exclusion of Loan Forgiveness 108(f) School based LRAPS Federal Public Service Loan Forgiveness Program Cancellation of a loan normally a taxable event under 108 If pursuant to a program Slide 26 College Savings Incentives Slide 27 UGMA/UTMA Uniform Gift to Minors Act Uniform Trust for Minors Involves planning Irrevocable Reverts to minor at age of majority Asset? For FAFSA reporting owned by student Income excluded if transferred directly to institution Slide 28 Estate/Gift Exclusion Not counted towards estate or annual gift limits Must be paid directly to IHE Slide 29 Early IRA Distribution penalty Not subject to 10% penalty May be subject to regular taxation Tuition and Fees Books, supplies, equipment Special needs Room and board (if registered at least half time) Slide 30 Education Savings Bond Interest Phaseouts MAGI $71,100 and $86,100 $106,650 to $136,650 married jointly Series EE issued after 1989 or series I Owner older than 24 at bond issue date Only for DENENDENT for whom you claim exemption on tax return Tuition and fees Form 8515 Slide 31 QTP (529) Plans Section 529 of the Internal Revenue Code Qualified Tuition Programs Pre-paid tuition or college savings Allows anyone to set up a plan for beneficiary Sponsored by states in cooperation with investment firms Large selection of investments Accrues tax free and withdrawals federal tax free for at least half time Tuition and fees Room and board Books, computer Special needs Slide 32 QTP (529) Plans Accrues tax free and withdrawals federal tax free for at least half time Tuition and fees Room and board Books, computer Special needs Transfer to other family member QTP Slide 33 Coverdell Education Savings Account Section 530 of IRC Many investment options Beneficiary must be under 18 when set up or special needs $2,000 annual limit Accrues tax free Tax free withdrawals for educational expenses Must liquidate at age 30 Contribution limits based on contributors MAGI Slide 34 Coverdell ESA MAGI less than $110,000 ($220,000) MAGI = AGI for most taxpayers Distributions tax free for ADJUSTED Qualified Educational Expenses K-12 and higher education expenses Slide 35 Repeal of 108(f) ? Renewability of Tuition and Fees deduction Tax on tuition benefits < $5,250? Slide 36 Have I exhausted you yet? Questions Comments Snide Remarks Slide 37 Contact Information Stephen Brown Assistant Dean Fordham Law sbrown@law.fordham.edu 212 636 7178