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March Newsletter: Income Tax Tips | FAFSA Procrastination | Scholarships

21 March 2014 6,219 views No Comment

March 2014 Financial Aid Newsletter

Are Zombies Better Than Taxes?

If you’ve been dreading April 15th more than the Zombie Apocalypse, you’re not alone. Battling the undead sounds like it could be kind of fun, right? But there’s nothing fun about navigating incomprehensible forms and giving your hard-earned cash to the government, especially when you’re trying to pay for a college education.

To help you find ways to save on your taxes, we’ve created an easy-to-understand resource that deciphers the IRS regulations on education credits and deductions. Get ready for Tax Day – check it out now:

How to pick the best mix of education tax credits and deductions.

Ask the Edvisor: Your Questions, Answered

Since it’s income tax season, we decided to answer three tax-related questions this month:

Q1: I filed my FAFSA using an estimate of my 2013 income and taxes. Do I need to do anything now that I’ve filed by federal income tax return?

Q2: Are scholarships taxable?

Q3: Can I deduct tuition and fees on my federal income tax return? Here are the answers from the premier expert on financial aid and “edvisor,” Mark Kantrowitz.

A1: Yes. The income and tax questions on the Free Application for Federal Student Aid (FAFSA) must be updated after the student and parents file their federal income tax returns. If the student and parents checked the “will file” answer to the tax return question on the FAFSA, the U.S. Department of Education will email them a reminder to update the FAFSA if they provided email addresses on the form.

The student and parents might be able to use the IRS Data Retrieval Tool (IRS DRT) to transfer information from their federal income tax returns to the FAFSA. Not only will this save time, but it also reduces the likelihood than the student’s FAFSA will be selected for verification. The IRS Data Retrieval Tool may be used a few weeks after filing the federal income tax return electronically and 6-8 weeks after filing a paper version of the federal income tax return.

You can learn more about the IRS Data Retrieval Tool by downloading our free book, Filing the FAFSA.

A2: The portion of a scholarship or fellowship used to pay for tuition, required fees and required textbooks, supplies and equipment may be excluded from taxable income in certain circumstances. The student must be a candidate for a degree or certificate and the scholarship or fellowship must not represent fee for services. Scholarship and fellowship amounts used or earmarked for living expenses, such as room and board, are taxable.

If the student is not a candidate for a degree or certificate, the full amount of the scholarship or fellowship is taxable, even if the student uses it for tuition. If the scholarship or fellowship is provided in exchange for services performed by the student or someone else (e.g., a parent), it is taxable. There is an exception, however, for certain scholarships for the health professions and for tuition waivers and reductions for teaching and research assistantships. Note that the full amount of a scholarship or fellowship is exempt from FICA taxes, such as Social Security and Medicare taxes, even if the student is not a candidate for a degree or certificate.

Visit www.edvisors.com/taxes/ for additional information.

A3: Yes. There are three overlapping education tax benefits based on qualified higher education expenses, such as tuition and fees (and in some cases also course materials such as textbooks). These are the American Opportunity Tax Credit, the Lifetime Learning Tax Credit and the Tuition & Fees Deduction.

The American Opportunity Tax Credit provides a federal income tax credit of up to $2,500 per student, based on the first $4,000 in qualified expenses for tuition, fees and course materials. The tax credit is limited to the first four years of postsecondary education. The student must be enrolled on at least a half-time basis. The tax credit is 40% refundable (up to $1,000), but only if the taxpayer claiming the tax credit cannot be claimed as an exemption on someone else’s federal income tax return.

The Lifetime Learning Tax Credit provides a federal income tax credit of up to $2,000 per tax return, based on the first $10,000 in qualified expenses for tuition and required fees. The tax credit is available for an unlimited number of years. The student does not need to be a candidate for a degree or certificate. The Lifetime Learning Tax Credit is popular among graduate and professional students and continuing education students who are not eligible for the American Opportunity Tax Credit.

The Tuition and Fees Deduction provides an above-the-line exclusion from income of up to $4,000 per tax return, based on qualified expenses for tuition and required fees and, in required by and paid to the school, textbooks, supplies and equipment. The exclusion from income yields a direct financial benefit of less than $1,000 for most taxpayers, but may provide an indirect benefit by reducing adjusted gross income (AGI).

The American Opportunity Tax Credit has the highest income phaseouts and yields the greatest direct financial benefit, so it is the best option for most taxpayers who qualify.

There are other education tax benefits, such as the student loan interest deduction and an exclusion from income for employer tuition assistance. Visit www.edvisors.com/taxes/ for additional information.

Our goal here at Edvisors is to help you make the best decisions about your college or university education. Part of that is answering your questions about student financial aid. We’ve added a section to our website that will feature your financial aid questions and Mark’s helpful advice. Submit your question to be included in Ask the Edvisor.

The Cure for FAFSA Procrastination

Has your state’s deadline for the 2014-2015 Free Application for Federal Student Aid (FAFSA) passed you by? If you’ve been bitten by the FAFSA procrastination bug, we’ve got good news: You haven’t missed the deadline for federal aid eligibility! (In fact, the Department of Education will accept FAFSAs as late as June 30, 2015.) But don’t wait that long. If you have questions that have stopped you from completing the form, we can help you with the answers.

Cure your procrastination bug with a free copy of Filing the FAFSA.

Free Money for College from the Today Show

Today Show hosts Al Roker and Natalie Morales recently interviewed two higher education experts. Say Yes to Education’s Jacques Steinberg and the Princeton Review’s Rob Franek shared some great insider tips that could help you increase financial aid and find scholarships.

Watch the Today Show video, “Free Money for College.”

The Seven Scholarships

This monthly section of the Financial Aid Newsletter features an intriguing list of seven scholarships that share a common characteristic. We hope this section will make you smile and inspire you to apply for more scholarships.

Seven Scholarships for Accounting Majors

  1. Association of Government Accountants (AGA) Academic Scholarships
  2. National Conference of CPA Practitioners Grants
  3. National Society of Accountants Scholarships
  4. Institute of Management Accountants (IMA) Scholarships
  5. Accounting and Financial Women’s Alliance Scholarships
  6. American Institute of CPAs Scholarships
  7. Teachers of Accounting at Two Year Colleges Scholarships

Featured Scholarships

This month we are highlighting scholarships from the ScholarshipPoints program. To enter, simply log in to your account and spend your points on these drawings before midnight Pacific on the date indicated:

Watch for our notification emails to see if you are a winner!

Stat Snapshot

Sources of Financial Aid

Source: Internal Revenue Service

Helpful IRS Links

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