<p>and any others who know:</p>
<p>Which college expenses are tax deductible?</p>
<p>Books
Room $ Board
Tuition
Other
?</p>
<p>Is it a straight deduction? </p>
<p>Thanks!</p>
<p>The general answer.....(drum roll)...... is NONE of them. You might be able to deduct student loan interest if you make under $135,000 of adjust gross income.</p>
<p>You may also, however, qualify for two tax credits,which are better than deductions in that you get a dollar for dollar reduction in your taxes.</p>
<ol>
<li>Hope Scholarship credit: This has a total credit of $1,500 maximum. What Congress giveth, they taketh back. the credit is phased out( based on my recollection) as follows</li>
</ol>
<p>a. Married filing jointly $87,000-107,000. Thus, if you and your spouse earn over $107,000 of adjust gross income ( this is before itemized deductions), you get no credit!</p>
<p>b.For single taxpayers, it phases out from $43,000-53,000. So much for tax simplification!</p>
<p>Note, the Hope credit doesn't apply to students who have been convicted of federal or state felony dealing with drugs. Presumably, if your kids were convicted of murder, rape, bank robbery etc. they would be eligible for the credit. You can thank your idiotic Congress and President for this one.</p>
<ol>
<li>Lifetime learning credit: You can get a credit of up to $2,000 per year for both undergraduate and graduate education. Again, what Congress giveth, they taketh back, The credit is phased out ( based on my recollection) for the same phase outs as above.</li>
</ol>
<p>Neither credit can be used for educational expenses paid by educational IRAs, Roth IRAs and prepaid tuition plans.</p>
<p>Also, the Hope credits are on a per student basis. Thus, if you have 3 college age student, you not only get the credit for each of them,but you get my sincerest sympathy.</p>
<p>However, the lifetime learning credit is per taxpayer. Thus,under the same circumstances, you get one lifetime credit. Also, you can claim both the Lifetime learning credits and Hope credit in the same year.</p>
<p>What everyone who has a business or owns real estate investments should have been doing, which I did, was to hire their kids in the business and pay them a wage. Reasonable wages paid to assistants for legitimate business services are deductible, and have them pay for their own college education. This way, you get the equivalent of a deduction for college expenses. In addition, you can put up to $4,000 ,earned in wages,in a Roth IRA and use that for college without paying any tax on the appreciation. </p>
<p>I should note that this info is based on my recollection. I may be off on the phase out numbers. You should check with your accountant.</p>
<p>Hope that this helped.:)</p>
<p>While not tax deductible against other income, a few of the items listed are "deductible" against scholarship income. In general terms, you can deduct from any scholarship income the amount paid for tuitions, books, and mandatory fees. The remaining part of scholarship income is reportable and taxable, although some of the income is excludable for FAFSA purposes.</p>
<p>Taxguy, does the benefit of paying your own children not erode with the impact of social security taxes? Also, for families that are at the "edge" of receiving financial aid, accumulating cash in the name of children could be costly. There are many parents who now curse their financial planners for having "moved" income and assets from the parents to their children. While it may have had small benefits while the children were growing up, the day of reckoning comes with a vengeance when FAFSA and CSS enter the fray.</p>
<p>When the colleges hit you up for contributions - and they don't wait very long, do they? - those contributuions are generally deductible as charitable donations.</p>
<p>Xiggi notes,"Taxguy, does the benefit of paying your own children not erode with the impact of social security taxes? Also, for families that are at the "edge" of receiving financial aid, accumulating cash in the name of children could be costly."</p>
<p>Response: What you say is partially true,but you are both getting a deduction for the wages AND are able to place money in a ROTH or Section 529 plan where are the appreciation is tax free when used for college. Thus, you may be hurting your need based aid,but benefiting in other ways. In addition,payments to your kids under age 18 from a sole proprietorship are exempt from FICA and unemployment tax. Also, the first $5,000 in wages that they receive is income tax free due to their standard deduction.</p>
<p>However, Xiggi, there is an old saying among tax lawyers in Wash DC: "Where there is a will.......there is a lawyer."</p>
<p>The FASFA form only counts certain investments as assets. Some investment don't count even if they are huge in amount.For example, life insurance cash value and annuities with insurance companies don't count as assets. Thus, you take the money that you are paying your kids, and right before you fill out the FASFA, you transfer all of it into a "low cost, single premium life insurance policy or annuity." The key is to use a low cost product. All cash in life insurance doesn't count as an asset,( atleast that was the case several years ago when I looked at the form).</p>
<p>NJres, college contributions, as long as they are tax exempt organizations are tax deductible; however, the key is that you can't get any benefit from the donation. If you make a donation but then send your kids to that college for no cost, it isn't a deductible donation!</p>
<p>Thanks, Taxguy!</p>
<p>Also, I read this little gem:</p>
<p>"Under age 18 (and at least 7the IRS has approved that age for employing your children), your children are exempt from Social Security and Unemployment Taxes through an unincorporated business."</p>
<p>By the way, do you think there is a similar rule for a minor who owns a sole proprietorship and pays himself wages?</p>
<p>Xiggi asks,"By the way, do you think there is a similar rule for a minor who owns a sole proprietorship and pays himself wages?"</p>
<p>Response:LOL, Xiggi, I will give you credit; you are always thinking. Nice try,but no cigar. You don't pay yourself wages from a sole proprietorship. All income is deemed net income to you period! You can pay yourself wages if you are a corporation,but then you have the social security problem. </p>
<p>What I have said in the above post,by the way, is not well known even among financial planners. It is one of the "tricks of the trade" that you come across speaking to people and attending seminars that we are supposed to not publish or talk about too much; otherwise, the government might try to plug this little financial loophole. Accordingly, you won't generally learn this stuff in any college course, and I would appreciate it if you would not publicize it.</p>
<p>taxguy,</p>
<p>Do tax free muni bonds count under FAFSA?</p>
<p>Taxguy, thanks for the added clarification. I have to admit that I was unaware of the "paying your children" FICA exemptions. An obvious excuse is that i am quite removed from having to worry about the issue. :)</p>
<p>As far as the publicity, I'm afraid that the power of the internet and google pretty much opens up everything. I typed a few keywords in google and a lot of articles popped up. Here are a few: <a href="http://www.entrepreneur.com/article/0,4621,312807,00.html%5B/url%5D">http://www.entrepreneur.com/article/0,4621,312807,00.html</a>
<a href="http://www.fool.com/taxes/2005/taxes050318.htm%5B/url%5D">http://www.fool.com/taxes/2005/taxes050318.htm</a></p>
<p>Again, many thanks for straightening me out.</p>
<p>Audiophile. All bonds, to my knowledge, count as assets Now how the government will find out about them is another issue.</p>
<p>Xiggi, actually, I was mostly concerned about the FASFA exempt assets. However, even if these ideas are on the internet, they still aren't well known or used a lot.</p>
<p>The line 41 on the student's FAFSA and line 79 on the parents FAFSA might reveal a few surprises. The adjustments to income go a long way to capture income that is exempt from taxation, but is nonetheless income for EFC purposes. </p>
<p>Here are the details:</p>
<p>a) Payments to tax-deferred pension and savings plans (paid directly or withheld from earnings). Amounts reported on the W-2 form in boxes 12a through 12d, codes D, E, F, G, H, and S
b) IRA deductions and payments to self-employed SEP, SIMPLE, Keogh, and other qualified plans from IRS Form 1040 - Total of lines 25 + 32; or 1040A Line 17
c) Child support received for all children. Don't include foster care or adoption payments
d) tax exempted interest income from IRS Form 1040 Line 8B or 1040A Line 8B
e) Foreign income exclusions from IRS Form 2555 Line 43 or 2555EZ Line 18
f) Untaxed portions of IRS distributions from IRS Form 1040 Lines 15a minus 15b (15a - 15b) or 1040A Lines 11a minus 11b (11a - 11b). Exclude rollovers. If negative, enter 0.
g) Untaxed portions of pensions from IRS Form 1040 Lines 16a minus 16b (16a - 16b) or 1040A Lines 12a minus 12b (12a - 12b). Exclude rollovers. If negative, enter 0
h) Credit for federal tax on special fuels
i) Housing, food, and other living expenses paid to members of the military, clergy, and others (including cash payments and cash value of benefits);
j) Veteran's non-education benefits such as Disability, Death Pension, or Dependency and Indemnity Compensation (DIC), and/or VA Educational Work-Study allowances
k) Any other untaxed income or benefits not reported elsewhere, such as Workman's Compensation, untaxed portions of Railroad Retirement benefits, Black Lung benefits, Disability, etc. Don't include student aid, Workforce Investment Act educational benefits, or benefits from flexible spending arrangements (e.g. cafeteria plans)
l) Money received or paid on your behalf (e.g. bills) not reported elsewhere on this form.</p>
<p>
[quote]
Also, you can claim both the Lifetime learning credits and Hope credit in the same year.
[/quote]
I thought that you could NOT claim them both in the same year. Am I incorrect?</p>
<p>I count the loss of a male child to a far away college as a lost and unrecoverable property asset on sch D.</p>
<p>Anxiousmom, the Hope and Lifetime learning credits are completely different credits and can, to my knowledge, be claimed in the same year, when last I checked. See IRS publication 970, page 4 and Conference Report Number 105-220 (Public Law 105-34) page 346. However, my expertise is in small and home based business tax matters and residential real estate tax matter, and this is not my speciality.</p>
<p>Itssomuch notes,"I count the loss of a male child to a far away college as a lost and unrecoverable property asset on sch D."</p>
<p>Response: LOL</p>
<p>Xiggi, notice life insurance cash value and insurance accumulations are not income for FASFA. In theory, parents can transfer all their kids cash, and even their own, into single premium cash value insurance and be poor for FASFA purposes as long as it is done before the filing of the FASFA application. You could be worth millions and get aid this way. How stupid is that? I guess this is what they pay the top accountants and financial planners for?</p>