Chapter 15 - Questions (Educational Provisions)

Question 1

What are three educational provisions available to taxpayers in 2017

Answer 1

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

Question 2

What form is the Tuition and fees deduction calculated on

Answer 2

Form 8917 Tuition and Fees

Question 3

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

Answer 3

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

Question 4

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

Answer 4

Form 8863 Education Credits

Question 5

Is the lifetime learning credit refundable?

Answer 5

No

Question 6

Is the AOTC refundable?

Answer 6

A portion may be refundable.

Question 7

May a taxpayer claim multiple educational provisions for a student?

Answer 7

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

Question 8

Can the credits be mixed for multiple students?

Answer 8

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

Question 9

Which benefit should the taxpayer choose for educational provision?

Answer 9

The one that is most beneficial.

Question 10

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

Answer 10

No

Question 11

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

Answer 11

No

Question 12

How was the AOTC created

Answer 12

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

Question 13

When and how was the AOTC made a permanent credit?

Answer 13

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

Question 14

What are the requirements for claiming the AOTC?

Answer 14

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.

Question 15

A taxpayer cannot claim the AOTC in what cases?

Answer 15

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.

Question 16

What is the maximum credit for the AOTC?

Answer 16

$2500 per eligible student

Question 17

Does the AOTC apply to all education?

Answer 17

Only the first four years of postsecondary education

Question 18

How many years can someone take the AOTC?

Answer 18

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

Question 19

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

Answer 19

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

Question 20

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

Answer 20

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

Question 21

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

Answer 21

No

Question 22

What are qualified expenses for the AOTC?

Answer 22

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

Question 23

What is the MAGI used for AOTC?

Answer 23

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

Question 24

Are student activity fees qualified educational expenses for AOTC?

Answer 24

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

Question 25

What expenses do not qualify for AOTC?

Answer 25

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.

Question 26

What is an eligible educational institution for AOTC purposes?

Answer 26

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.

Question 27

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

Answer 27

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.

Question 28

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

Answer 28

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.

Question 29

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

Answer 29

Yes, only if they are not claimed.

Question 30

Qualified educational expenses must be reduced by what?

Answer 30

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

Question 31

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

Answer 31

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.

Question 32

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

Answer 32

As if the student paid the expenses.

Question 33

If qualified expenses are refunded, how is that handled?

Answer 33

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

Question 34

How is the AOTC amount calculated?

Answer 34

100% of the first $2000 of qualified education expenses paid | 25% of the next $2000 of qualified education expenses paid.

Question 35

How is the phaseout handled for the AOTC?

Answer 35

Phased out for taxpayers with MAGI between $80000 and $90000 ($160000 and $180000 for MFJ) Computed by ($180000-MAGI)/$20000 (MFJ) ($90000-MAGI)/$10000

Question 36

What form do enrolled students receive from educational institution

Answer 36

Form 1098-T

Question 37

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

Answer 37

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

Question 38

What does Box 2 have on Form 1098-T

Answer 38

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

Question 39

What does Box 5 have on Form 1098-T

Answer 39

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.

Question 40

What does Box 6 show on Form 1098-T

Answer 40

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

Question 41

What does Box 4 show on Form 1098-T?

Answer 41

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

Question 42

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

Answer 42

Box 4 and Box 6.

Question 43

What form is used to claim the AOTC?

Answer 43

Form 8863, Education Credits

Question 44

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

Answer 44

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.

Question 45

What are the due diligence requirements for AOTC?

Answer 45

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

Question 46

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

Answer 46

$510 penalty for each credit, each failure

Question 47

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

Answer 47

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

Question 48

How are copies of worksheets kept normally for due diligence?

Answer 48

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

Question 49

What are the most common filing errors for AOTC?

Answer 49

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.

Question 50

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

Answer 50

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

Question 51

What are some questions to ask regarding AOTC?

Answer 51

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?

Question 52

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

Answer 52

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

Question 53

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

Answer 53

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.

Question 54

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

Answer 54

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.

Question 55

What is the amount of the Lifetime Learning Credit?

Answer 55

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

Question 56

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

Answer 56

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

Question 57

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

Answer 57

Yes, for an unlimited amount of years.

Question 58

Who can claim the Lifetime Learning Credit?

Answer 58

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.

Question 59

Who cannot claim the Lifetime Learning Credit?

Answer 59

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

Question 60

Is the lifetime Learning Credit Refundable?

Answer 60

No

Question 61

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

Answer 61

No

Question 62

Is there a course load requirement for the Lifetime Learning Credit

Answer 62

Available for one or more courses.

Question 63

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

Answer 63

No

Question 64

Is there a phase out for the Lifetime Learning Credit?

Answer 64

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

Question 65

What are qualified expenses for the Lifetime Learning Credit?

Answer 65

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.

Question 66

Where is the Lifetime Learning Credit claimed?

Answer 66

Form 8863, Part III.

Question 67

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

Answer 67

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

Question 68

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

Answer 68

It reduces income, it is not a credit.

Question 69

Who may claim the Tuition and Fees Deduction?

Answer 69

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.

Question 70

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

Answer 70

Yes $80000 ($160000 MFJ)

Question 71

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

Answer 71

Line 19

Question 72

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

Answer 72

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

Question 73

How many years is the Tuition and Fees deduction available?

Answer 73

If not renewed, expires at end of 2017

Question 74

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

Answer 74

No

Question 75

What MAGI

Answer 75

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

Question 76

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

Answer 76

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

Question 77

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

Answer 77

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)

Question 78

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

Answer 78

No

Question 79

What is the Tuition and Fees Deduction calculated on?

Answer 79

Form 8917 Tuition and Fees Deduction

Question 80

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

Answer 80

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