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Federal tax prep > Chapter 15 - Questions (Educational Provisions) > Flashcards

Chapter 15 - Questions (Educational Provisions) Flashcards

1
Q

What are three educational provisions available to taxpayers in 2017

A

Tuition and fees deduction
American Opportunity Tax Credit (AOTC)
Lifetime learning credit

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2
Q

What form is the Tuition and fees deduction calculated on

A

Form 8917 Tuition and Fees

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3
Q

Is the Tuition and fees deduction a dollar for dollar credit?

A

No, it is an above-the-line deduction, and reduces taxable income.

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4
Q

What form are the AOTC and Lifetime Learning Credit calculated on?

A

Form 8863 Education Credits

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5
Q

Is the lifetime learning credit refundable?

A

No

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6
Q

Is the AOTC refundable?

A

A portion may be refundable.

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7
Q

May a taxpayer claim multiple educational provisions for a student?

A

No, may only claim one educational provision per qualifying student.

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8
Q

Can the credits be mixed for multiple students?

A

Yes, tuition and fees can be used for one, while another claims one of the credits.

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9
Q

Which benefit should the taxpayer choose for educational provision?

A

The one that is most beneficial.

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10
Q

If a taxpayer paid for education with tax-free assistance, may they claim an education benefit?

A

No

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11
Q

If a taxpayer was reimbursed for education by an employer or similar program may they claim an education benefit?

A

No

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12
Q

How was the AOTC created

A

By the American Recovery and Reinvestment Act of 2009 (ARRA)

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13
Q

When and how was the AOTC made a permanent credit?

A

In the Protecting America from Tax Hikes “PATH” act of 2015.

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14
Q

What are the requirements for claiming the AOTC?

A

Qualified education expenses are paid for an eligible student
The eligible student is the taxpayer, spouse, or dependent for whom the taxpayer actually claims an exemption
The taxpayer pays qualified education expenses for higher education.

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15
Q

A taxpayer cannot claim the AOTC in what cases?

A

The taxpayer’s filing status is MFS
The taxpayer is claimed as a dependent on anyone else’s tax return
The taxpayer’s MAGI is above $90,000 ($180k for MFJ)
The taxpayer claims the lifetime learning credit or the tuition and fees deduction for the same student in the same year.

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16
Q

What is the maximum credit for the AOTC?

A

$2500 per eligible student

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17
Q

Does the AOTC apply to all education?

A

Only the first four years of postsecondary education

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18
Q

How many years can someone take the AOTC?

A

For years per eligible student (including any years Hope credit was claimed)

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19
Q

Does the student have to be obtaining a degree for the AOTC to be claimed?

A

Must be pursuing an undergraduate degree or other recognized academic credential.

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20
Q

Does a student have to be full time for the AOTC to be claimed?

A

No, but must be at least half time for at least one academic period beginning during the tax year.

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21
Q

If a student has a felony drug conviction, can the AOTC be claimed?

A

No

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22
Q

What are qualified expenses for the AOTC?

A

Tuition and fees. Course related books, supplies, and equipment.

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23
Q

What is the MAGI used for AOTC?

A

AGI plus foreign earned income exclusion, foreign housing deduction, income excluded by bona fide residents of American Samoa/Puerto Rico.

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24
Q

Are student activity fees qualified educational expenses for AOTC?

A

Only if they must be paid to the institution as a condition of enrollment or attendance.

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25
Q

What expenses do not qualify for AOTC?

A

Insurance, medical, room and board, transportation, and other personal or living expenses. Any expenses involving sports, games, or hobbies or noncredit courses, unless part of the student’s degree program.

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26
Q

What is an eligible educational institution for AOTC purposes?

A

Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the USDOE. Includes virtually all accredited public, nonprofit, and proprietary postsecondary institutions. Includes certain educational institutions outside the US that are eligible to participate in a student aid program administered by the DOE.

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27
Q

What conditions must be met to be an eligible student for ATOC?

A

Not claimed the AOTC/Hope for 4 years previously.
Did not complete four years of postsecondary education prior
Enrolled at least half time in a program leading to a degree, certificate, or recognized academic credential for at least one academic period beginning in the tax year.
Not been convicted of any federal or state felony for controlled substance.

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28
Q

Can a dependent claim an education credit on their own return?

A

No, a student claimed as a dependent cannot claim educational credit. Any expenses paid on behalf of the dependent are treated as paid by the person who claims the dependency exemption, whether taxpayer’s money, student’s money, loans, gifts, inheritances, savings.

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29
Q

If a dependent can be claimed but is not claimed, may they claim the AOTC?

A

Yes, only if they are not claimed.

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30
Q

Qualified educational expenses must be reduced by what?

A

Any nontaxable benefits like scholarships, grants, veterans’ or military educational benefits.
Also excludible amounts withdrawn from Coverdell Education Savings Account or Qualified Tuition Plan

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31
Q

If education expenses are paid with borrowed funds, can the AOTC be claimed?

A

Yes. If loan proceeds used to pay expenses, credit is based on amount of expenses paid (not amt of loan payments) and are considered paid the year the institution was paid. If loan disbursed directly to institution, considered paid when acct is credited or last day of pmt for academic period.

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32
Q

If a third party makes payment directly to an institution for qualified expenses, how is that treated?

A

As if the student paid the expenses.

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33
Q

If qualified expenses are refunded, how is that handled?

A

The refund must be subtracted if before filing. If after, will have to recapture some of the credit claimed.

34
Q

How is the AOTC amount calculated?

A

100% of the first $2000 of qualified education expenses paid

25% of the next $2000 of qualified education expenses paid.

35
Q

How is the phaseout handled for the AOTC?

A

Phased out for taxpayers with MAGI between $80000 and $90000 ($160000 and $180000 for MFJ)
Computed by

($180000-MAGI)/$20000 (MFJ)
($90000-MAGI)/$10000

36
Q

What form do enrolled students receive from educational institution

A

Form 1098-T

37
Q

What is shown in Box 1 of Form 1098-T?

A

Total amount of payments received by the institution for the student’s qualified expenses.

38
Q

What does Box 2 have on Form 1098-T

A

Net amount of tuition and qualified expenses billed to the student.

39
Q

What does Box 5 have on Form 1098-T

A

Total of all scholarships or grants received by the institution on behalf of the student. These amounts will reduce the amt of qualified expenses in box 1.

40
Q

What does Box 6 show on Form 1098-T

A

Adjustments to scholarships or grants for the prior year - may signify need for recapture

41
Q

What does Box 4 show on Form 1098-T?

A

Any adjustments made for a prior year’s qualified expenses previously reported on Form 1098-T. May signify need for recapture.

42
Q

Which boxes on Form 1098-T may signify the need to recapture AOTC credit previously taken?

A

Box 4 and Box 6.

43
Q

What form is used to claim the AOTC?

A

Form 8863, Education Credits

44
Q

Under what circumstances does a taxpayer not qualify for the refundable part of the AOTC?

A

If they
Are under age 18 at end of year
Are 18 and their earned income was less than 1/2 of their support.
Are a full-time student over age 19 and under age 24 and their earned income was less than 1/2 of their support
Have at least one parent who was alive at end of tax year
Are not filing a joint return.

45
Q

What are the due diligence requirements for AOTC?

A

Complete and submit form 8867 Paid Preparer’s Due Diligence Checklist
Complete and keep all worksheets used to compute any of these four refundable credits
Satisfy the knowledge requirement
Satisfy the documentation requirement

46
Q

What is the penalty for failure to meet EITC, AOTC< and CTC/ACTC due diligence requirements?

A

$510 penalty for each credit, each failure

47
Q

What parts of Form 8867 need to be completed for the AOTC?

A

The AOTC box, and questions in Parts I, IV and V.

48
Q

How are copies of worksheets kept normally for due diligence?

A

Blockworks will automatically create and store. Keeping a paper copy is not required unless return is completed by hand.

49
Q

What are the most common filing errors for AOTC?

A

A student who didn’t attend a college or university that is an eligible educational institution.
A student who didn’t pay qualifying educational expenses
Non-qualified educational expenses
The credit for the same student for more than 4 years.

50
Q

Can tax professionals rely on software alone to satisfy the knowledge requirement?

A

No. Must conduct a thorough tax interview and use the smell test.

51
Q

What are some questions to ask regarding AOTC?

A

Did you receive a form 1098-T?
How many y ears have you or your dependent student claimed an educational credit?
How many academic terms did the student attend school during the tax year.
Is the student an undergraduate?
Is the student enrolled in a program that will result in a degree or other professional credential?
What is the amount of qualified expenses that were actually paid for this tax year.
Can you provide documentation that supports each qualified educational expense paid?

52
Q

Must the taxpayer provide a form 1098-T for the AOTC?

A

Yes. Required to claim AOTC. Info needed for Form 8863.

53
Q

If a taxpayer does not receive a Form 1098-T what can you do?

A

Assist them in obtaining it. Determine if the student attends a college or university that is an eligible educational institution by using the DoE lookup tool or FAFSA school code search. Have the taxpayer or student attempt to log into their student account to retrieve the form. If not available, have them contact the institution to request the form.

54
Q

What should tax professional do to meet due diligence requirement in terms of the tax interview and notes?

A

Record an itemized list and the amount of qualified educational expenses paid during the year in the due diligence notes.
Document the questions and responses when determining eligibility
Document the conversation about amounts paid and steps to verify attendance at an eligible educational institution in due diligence notes.

55
Q

What is the amount of the Lifetime Learning Credit?

A

20% of the total qualified expenses for all eligible students on the tax return.

56
Q

What is the maximum amount of expenses allowed for Lifetime Learning Credit?

A

$10000 per tax return. Max annual credit of $2000 per return, regardless of the number of eligible students.

57
Q

Can the Lifetime Learning Credit be claimed for more than 4 years of education expenses?

A

Yes, for an unlimited amount of years.

58
Q

Who can claim the Lifetime Learning Credit?

A

Taxpayer if both are true:
Taxpayer paid qualified education expenses of higher education for an eligible student
Eligible student is taxpayer, spouse, or a dependent who the taxpayer claims.

59
Q

Who cannot claim the Lifetime Learning Credit?

A

Taxpayer filing MFS
Taxpayer is claimed as a dependent on any other tax return
Taxpayer MAGI is $66000 ($132000 MFJ) or more
Taxpayer, or spouse if MFJ, was a nonresident alien for any part of year, and did not elect to be treated as a resident alien for tax purposes
The taxpayer claims the AOTC or the tuition and fees deduction for the same student in 2017

60
Q

Is the lifetime Learning Credit Refundable?

A

No

61
Q

Does the student need to be pursuing an undergraduate degree or other recognized credential for the Lifetime Learning Credit?

A

No

62
Q

Is there a course load requirement for the Lifetime Learning Credit

A

Available for one or more courses.

63
Q

Does a felony drug conviction disqualify a student from the Lifetime Learning Credit?

A

No

64
Q

Is there a phase out for the Lifetime Learning Credit?

A

Yes, $56000-$66000 ($112000-$132000 for MFJ)

65
Q

What are qualified expenses for the Lifetime Learning Credit?

A

Expenses incurred by a student for either of these reasons:
Student is enrolled in a course that is part of a degree program for undergraduate or graduate-level courses
Student took courses to acquire or improve job skills.

66
Q

Where is the Lifetime Learning Credit claimed?

A

Form 8863, Part III.

67
Q

How much may be deducted by the Tuition and Fees Deduction?

A

Up to $4000 as an adjustment to income, per return (not per student)

68
Q

How is the Tuition and Fees Deduction different from the two educational credits?

A

It reduces income, it is not a credit.

69
Q

Who may claim the Tuition and Fees Deduction?

A

Taxpayer must have paid qualified expenses for themselves, a spouse, or a dependent who is claimed as an exemption. If the taxpayer did not pay the expenses, they cannot claim the deduction. If the dependent pays, and taxpayer claims them, no one can claim the tuition and fees deduction.

70
Q

Is there a limit on MAGI for the Tuition and Fees Deduction?

A

Yes $80000 ($160000 MFJ)

71
Q

Where is the adjustment to income taken for the Tuition and Fees Deduction for Form 1040A

A

Line 19

72
Q

Is there a restriction on number of years of postsecondary education to claim the Tuition and Fees Deduction?

A

No, all years and for courses to acquire job skills.

73
Q

How many years is the Tuition and Fees deduction available?

A

If not renewed, expires at end of 2017

74
Q

Does a felony drug conviction disqualify the student for the Tuition and Fees Deduction?

A

No

75
Q

What MAGI

A

Tuition and fees required for enrollment. Course-related books, supplies, and equipment, required to be purchased as a condition of enrollment or attendance.

76
Q

For what academic periods is the Tuition and Fees Deduction valid for?

A

Payments made in 2017 for academic periods beginning in 2017 and the first three months of 2018.

77
Q

How does the phaseout work for the Tuition and Fees Deduction?

A

There is a table, rather than a formula.
MAGI < $65001 Max Ded: $4000 ($130001 MFJ)
$65001-$80000 Max Ded: $2000 ($130001-$160000 MFJ)
80001+ Max Ded: $0 ($160001 MFJ)

78
Q

Are room and board qualified expenses for the Tuition and fees deduction?

A

No

79
Q

What is the Tuition and Fees Deduction calculated on?

A

Form 8917 Tuition and Fees Deduction

80
Q

Generally, if qualified, which will taxpayers benefit most from?

A

Generally AOTC. Next Lifetime Learning, last Tuition and Fees.

Federal tax prep (33 decks)

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