Jassen Bowman EA
Jassen Bowman EA

Understanding tax breaks for higher education

If you’ve been effected by the economic downturn and decided to return to school to further your own education, or you support a dependent that is a college student, there are three education tax breaks that you should be aware of.

Each of the three is unique, and only one of them can be claimed for any particular student in a given tax year. But, you can claim one type of education credit for a child, for example, and another type of credit for yourself.

The three most common tax breaks for higher education are:

  1. American Opportunity Credit (AOC)
  2. Lifetime Learning Credit (LLC)
  3. Tuition and fees deduction

All three of these tax benefits can be claimed regardless of whether you itemize or claim the standard deduction. The AOC and LLC are claimed using Form 8863, and while the IRS didn’t start processing tax returns filed with this form until late in the current tax return filing season, they are now doing so. The tuition and fees deduction is claimed using form 8917.

A few legislative notes:

  1. The “fiscal cliff” bill passed Jan 2, 2013 by Congress extended the AOC through tax year 2017.
  2. The same law also retroactively extended the tuition and fees deduction through tax year 2013, since it actually had expired at the end of 2011.
  3. The LLC is a permanent part of the tax code (at least for now – that could change tomorrow, of course).

It should be noted that none of these tax benefits can be claimed by a non-resident alien, nor a person filing as Married Filing Seperately.

The AOC is aimed at full time college students completing their first four years of undergraduate education. Students must be at least a half-time student for at least 5 months out of the year to claim this credit, and they must also not have any felony drug convictions. The Lifetime Learning Credit, as the name implies, is applicable to all students, including part-time and graduate students. The tuition and fees deduction generally provides the least direct tax benefit, but can usually be claimed by people that can’t claim one of the other two for some reason.

The most common reason for not being eligible for one of the other two tax credits is due to income limitations. For 2012, the AOC starts to phase out for single taxpayers with adjusted gross incomes over $80,000 (double that for married couples), and the … Continue reading

Tax resolution is dead

This is something that I’ve been thinking about for quite a while. Several years in fact.

Some people may think it’s just a matter of semantics, but there is a lot more to it than that.

But the more thought I put into it, the more I know I’m right: Tax resolution is dead.

What the hell am I talking about?

I’m talking about terminology, public perception, and professionalism. The term “tax resolution” has become tainted in many respects, due the actions of a small number of large companies. The phrase now evokes images of boiler room sales people cramming a canned sales pitch down the throat of somebody that can’t even rub two dimes together.

I personally quit using the phrase over a year ago to describe what it is that I do. When somebody asks the inevitable question in our social system, “What do you do?”, my answer, also referred to in the sales world as an “elevator speech”, is pretty simple. I do not consider myself a part of the tax resolution industry, rather, “I represent small business taxpayers in front of the IRS to remove the stress and anxiety of audits, seizures, levies, and other collections action. I deal with the IRS for you, so you can continue doing what you do best, which is running your business.”

Contrast that to, “I do tax resolution.” Which sounds more professional to you?

My friend and mentor James Orr has ingrained into me the concept of always being on “the right side of the desk”. When people call you, even if that phone call was sparked by your marketing, that puts you on the right side of the desk. When you have positioned yourself as a professional, rather than a shark hunting for prey, you are on the right side of the desk. When you “represent people”, rather than “settle debts”, you’re on the right side of the desk.

I personally think that this approach is even more important more those of us that are Enrolled Agents. Why? Because nobody knows what we are! “Attorney” and “CPA” are common, everyday words — everybody knows what they are. Enrolled Agents have to explain what we are. Instead, let’s remove that explanation from the equation, and get right to the core benefit we provide our clients.

In my writing to you, I’ve continued using the term “tax resolution” because it’s the common … Continue reading

Firefighter and ambulance meal deduction facts

There is a pervasive myth within the emergency services professions regarding a tax deduction for meals during their on-shift days.

This myth is most common with the firefighter ranks, but is also seen within ambulance, police, and other emergency services professions.

Where this myth comes from, I’m not certain. But it definitely maintains it’s urban legend status due to being passed from one person to another. It can only be assumed that tens of thousands of emergency services personnel illegally take this deduction every year.

So let’s set the record straight: There is no on-shift meal deduction permitted for emergency services personnel.

It doesn’t matter if you work a 24-hour shift, and it doesn’t matter what you do for a living (this isn’t limited to emergency personnel, it’s EVERYBODY): If you’re at your job, in your home area, regardless of shift length, there is no meal deduction. Period.

Meal deductions, including per diem (Meals and Incidental Expenses – M&IE), are only permitted when you travel away from home for business or work, and are not reimbursed. If you actually get paid per diem, you can’t also deduct it (no double dipping, in other words).

Here is what firefighters and other workers can do, however. Some fire stations, police stations, and other work places where it is common to work long shifts have what is called a common meal fund. Basically, everybody pitches in a certain amount of money per day, and it pays for food for the entire crew for that day.

If everybody does it, and it’s required by the employer, then it’s deductible. In other words, your fire department or other agency must have made it a mandatory participation practice. In this case, the money you put into the food bucket every day is deductible on Form 2106 under Miscellaneous Deductions, which are subject to a “floor” of 2% of your Adjusted Gross Income.

Hopefully this will clarify this practice. If you work in emergency services, do your co-workers a favor, and refer them to this blog post — it may help them avoid an “undesired IRS interaction.”… Continue reading