Reminder for Parents, Students: Check Out College Tax Benefits

Reminder for Parents, Students: Check Out College Tax Benefits

 WASHINGTON ― With back-to-school season in full swing, the Internal Revenue Service reminds parents and students about tax benefits that can help with the expense of higher education.

Two college tax credits apply to students enrolled in an eligible college, university or vocational school. Eligible students include the taxpayer, their spouse and dependents.

American Opportunity Tax Credit

The American Opportunity Tax Credit, (AOTC) can be worth a maximum annual benefit of $2,500 per eligible student. The credit is only available for the first four years at an eligible college or vocational school for students pursuing a degree or another recognized education credential. Taxpayers can claim the AOTC for a student enrolled in the first three months of 2018 as long as they paid qualified expenses in 2017.

Lifetime Learning Credit

The Lifetime Learning Credit, (LLC) can have a maximum benefit of up to $2,000 per tax return for both graduate and undergraduate students. Unlike the AOTC, the limit on the LLC applies to each tax return rather than to each student. The course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. The credit is available for an unlimited number of tax years.

Form 1098-T, Tuition Statement, is required to be eligible for an education benefit. Students receive this form from the school they attended. There are exceptions for some students.

Other education benefits

Other education-related tax benefits that may help parents and students are:

• Student loan interest deduction of up to $2,500 per year.
• Scholarship and fellowship grants. Generally, these are tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Savings bonds used to pay for college. Though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years of age.
• Qualified tuition programs, also called 529 plans, are used by many families to prepay or save for a child’s college education. Contributions to a 529 plan are not deductible, but earnings are not subject to federal tax when used for the qualified education expenses.

Source: Internal Revenue Service

contact@officetaxservices.com

(858)247-1680

  

IRS Issues Guidance for Allowance of Credit for Increasing Research Activities

IRS Issues Guidance for Allowance of Credit for Increasing Research Activities

WASHINGTON--The Internal Revenue Service has issued guidance to Large Business & International (LB&I) Division examiners regarding the examination of the credit for increasing research activities under IRC Section 41 (“Research Credit”) claimed by LB&I taxpayers.

Independently determining the correct amount of Research Credit claimed by LB&I taxpayers can be resource intensive for those taxpayers and LB&I examiners. The directive is intended to provide an efficient approach for determining the amount of qualified research expenses (“QREs”) for LB&I taxpayers while, at the same time, reducing the burden of doing so on LB&I taxpayers and examiners.

LB&I taxpayers may choose to follow the terms of the directive on original returns timely filed (including extensions) on or after the date of the directive. At the beginning of an examination that includes the Research Credit, the audit team will verify whether the taxpayer followed or plans to follow the directive. For taxpayers choosing to follow the directive, the audit team will ensure the taxpayer complies with the eligibility requirements provided in the directive.

The directive instructs LB&I examiners to accept the Adjusted Accounting Standards Codification (ASC) 730 Financial Statement R&D for the credit year as the amount of QREs for that year. Adjusted ASC 730 Financial Statement R&D is made up of the research and development costs currently expensed on a taxpayer’s Certified Audited Financial Statement pursuant to ASC 730 for U.S. GAAP purposes and includes certain specified adjustments made to ASC 730 Financial Statement R&D.

The directive only applies to LB&I taxpayers (i.e. assets equal to or greater than $10 million) that follow U.S. GAAP to prepare their Certified Audited Financial Statements, which show as a separate line item on the income statement the amount of the currently expensed ASC 730 Financial Statement R&D included in their Certified Audited Financial Statements or show separately stated in a note to their Certified Audited Financial Statements.

The directive is not an official pronouncement of law, and cannot be used, cited, or relied on as such. In addition, nothing in the directive should be construed as affecting the operation of any other provision of the Internal Revenue Code, Treasury Regulations or guidance thereunder.

Source: Internal Revenue Service

contact@officetaxservices.com

(858)247-1680

 

Special Relief to Encourage Leave-Based Donation Programs for Victims of Hurricane and Tropical Storm Irma

IRS Provides Special Relief to Encourage Leave-Based Donation Programs for Victims of Hurricane and Tropical Storm Irma

WASHINGTON – The Internal Revenue Service announced special relief designed to support leave-based donation programs to aid victims of Hurricane and Tropical Storm Irma. This parallels relief granted to Hurricane and Tropical Storm Harvey victims.

Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster.

Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses.

Source: Internal Revenue Service

contact@officetaxservices.com

(858)247-1680

 

Know Your Taxpayer Bill of Rights

Every taxpayer has a set of fundamental rights and the IRS has an obligation to protect them. The “Taxpayer Bill of Rights” groups the taxpayer rights found in the tax code into 10 categories. Know these rights when interacting with the IRS.

Below are the descriptions of each right:

1. The Right to Be Informed. Taxpayers have the right to know what to do in order to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures on all tax forms, instructions, publications, notices and correspondence. They have the right to know about IRS decisions affecting their accounts and receive clear explanations of the outcomes.
2. The Right to Quality Service. Taxpayers have the right to receive prompt, courteous and professional assistance in their interactions with the IRS. They also have the right to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
3. The Right to Pay No More Than the Correct Amount of Tax. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties and to have the IRS apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard. Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions. They also have the right to expect the IRS to consider their timely objections promptly and fairly and to receive a response if the IRS does not agree with their position.
5. The Right to Appeal an IRS Decision in an Independent Forum. Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties and have the right to receive a written response regarding the Office of Appeals’ a decision. Taxpayers generally have the right to take their cases to court.
6. The Right to Finality. Taxpayers have the right to know the maximum amount of time they have to challenge an IRS position as well as the amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
7. The Right to Privacy. Taxpayers have the right to expect that any IRS inquiry, audit or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
8. The Right to Confidentiality. Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
9. The Right to Retain Representation. Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
10. The Right to a Fair and Just Tax System. Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

Source: Internal Revenue Service

contact@officetaxservices.com

(858)247-1680

 

Divorce or Separation May Affect Taxes

Taxpayers who are divorcing or recently divorced need to consider the impact divorce or separation may have on their taxes. Alimony payments paid under a divorce or separation instrument are deductible by the payer, and the recipient must include it in income. Name or address changes and individual retirement account deductions are other items to consider.

• Child Support Payments are not Alimony.  Child support payments are neither deductible nor taxable income for either parent.
• Deduct Alimony Paid. Taxpayers can deduct alimony paid under a divorce or separation decree, whether or not they itemize deductions on their return. Taxpayers must file Form 1040; enter the amount of alimony paid and their former spouse's Social Security number or Individual Taxpayer Identification Number.
• Report Alimony Received. Taxpayers should report alimony received as income on Form 1040 in the year received. Alimony is not subject to tax withholding so it may be necessary to increase the tax paid during the year to avoid a penalty. To do this, it is possible to make estimated tax payments or increase the amount of tax withheld from wages.
• IRA Considerations. A final decree of divorce or separate maintenance agreement by the end of the tax year means taxpayers can’t deduct contributions made to a former spouse's traditional IRA. They can only deduct contributions made to their own traditional IRA.
• Report Name Changes.  Notify the Social Security Administration (SSA) of any name changes after a divorce. The name on a tax return must match SSA records. A name mismatch can cause problems in the processing of a return and may delay a refund.

Source: Internal Revenue Service

contact@officetaxservices.com

(858)247-1680