Exploring Education Benefits Example Immersion Lesson Filing Status and More 9/12/2018 Exploring Education Benefits “Where is the most bang for the buck?” Instructor Notes The purpose of this presentation is to review the various options for reporting education expenses in the return. Volunteers will be able to practice entering information in TaxSlayer. Discussion questions are included to help reinforce the tax law associated with education benefits and the volunteers will be directed to review key pages in publication 4012. The last part of the exercise discusses reporting unrestricted grants as taxable income in order to maximize benefits on a return and may not be suitable for discussion with new volunteers. October 28, 2016 LC & Instructor Training

Immersion Exercise Log onto your TaxSlayer Account Begin a new return Jack Jackson

Single Self-employed Basketball Coach YMCA Half-time student, College Freshman Pursuing a degree in sports management

Example Immersion Lesson Filing Status and More 9/12/2018 Make a Table On a sheet of paper create the following table: Benefit AGI Refund No Education Benefits American Opportunity Lifetime Learning Business Expense Tuition and Fees October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Enter Jack’s self-employment income Jack has no expenses October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 No Education Benefits What is Jack’s AGI? Refund? Benefit AGI Refund/Amt Due No Education Benefits $25,092 ($2,060) American Opportunity Lifetime Learning Business Expense Tuition and Fees October 28, 2016 LC & Instructor Training

Education Expenses Jack is pursuing a degree in sports management so that he can improve his skills and value as a coach Jack has a 1098-T showing his tuition expense (Scholarship is for tuition only) He also has a the following receipts: $125 for a campus parking pass $350 for course books he bought through an on- line bookstore Jot these down

Options Jack was told that there are several options for claiming education expenses on his return and that he should go see the experts at AARP Tax-Aide who would determine which option was best for him.

Example Immersion Lesson Filing Status and More 9/12/2018 First Let’s Review Open Pub 4012 to Tab J-2&3 Review the various benefits and note differences Instructor Notes Instructors can use this opportunity to quiz volunteers and have them find the answers on these two tabs. Examples: When can text books be used as a qualified education expense? and Where must they be purchased? When can a computer be claimed as an expense? When can room and board be include on a return to help reduce a taxpayer’s tax liability? How much employer assistance can be received tax free? October 28, 2016 LC & Instructor Training

American Opportunity Credit Example Immersion Lesson Filing Status and More 9/12/2018 American Opportunity Credit What probing questions must you ask to see if Jack qualifies? Open Pub 4012 to Tab J-5 & J-6 Instructor Notes Give volunteers a chance to answer and then direct them to pub 4012 to review October 28, 2016 LC & Instructor Training

American Opportunity Credit Enter the 1098-T for the American Opportunity Credit

Example Immersion Lesson Filing Status and More 9/12/2018 Comparing Benefits What is Jack’s AGI? Refund? Benefit AGI Refund/Amt Due No Education Benefits $25,092 ($2,060) American Opportunity $24,930 $487 Lifetime Learning Business Expense Tuition and Fees Instructor Notes Volunteers may have different answers for AGI. What business expenses did they deduct? The $125 parking pass at the university can be deducted, plus the AOC limits expenses to $4000. In this case Jack would use $3,700 in tuition and can add $300 for textbooks. The remaining $50 of textbooks could be deducted as a business expense. Why did AGI change? Examine the 1040 and note the changes October 28, 2016 LC & Instructor Training

Lifetime Learning Credit Example Immersion Lesson Filing Status and More 9/12/2018 Lifetime Learning Credit What requirements are different for this benefit than for the AOC? Instructor Notes Volunteers should be directed to find the answers in Pub 4012 October 28, 2016 LC & Instructor Training

Change the 1098-T information for the Lifetime Learning Credit

Example Immersion Lesson Filing Status and More 9/12/2018 Comparing Benefits What is Jack’s AGI? Refund? Benefit AGI Refund/Amt Due No Education Benefits $25,092 ($2,060) American Opportunity $24,930 $487 Lifetime Learning $24,651 ($1193) Business Expense Tuition and Fees Instructor Notes Volunteers may have different answers for AGI. What business expenses did they deduct? The $125 parking pass at the university can be deducted, plus for LLC textbooks must be purchased through the university so because Jack bought them on line he can’t include them for LLC, but he can put the full $350 as a business expense. Examine the 1040 and note the changes October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Business Expense Can Jack deduct his education expenses as a business expense? Jack attends classes during in the morning then drives to the YMCA to coach in the afternoon. Can he deduct that mileage? Instructor Notes This is an opportunity to discuss the rules on deducting mileage. In this case, is the college treated as a business location? October 28, 2016 LC & Instructor Training

Delete the 1098-T information and enter appropriate business expenses

Example Immersion Lesson Filing Status and More 9/12/2018 Comparing Benefits What is Jack’s AGI? Refund? Benefit AGI Refund/Amt Due No Education Benefits $25,092 ($2,060) American Opportunity $24,930 $487 Lifetime Learning $24,651 ($1193) Business Expense $21,212 ($893) Tuition and Fees Examine the 1040 and note the changes October 28, 2016 LC & Instructor Training

Tuition and Fees Adjustment Example Immersion Lesson Filing Status and More 9/12/2018 Tuition and Fees Adjustment This is rarely the best option. When might it be worth evaluating? Instructor Notes Tuition and Fees adjustment was to expire at the end of 2016. If it is not extended by congress then you should delete this discussion. October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Remove the tuition from business expenses and enter as a Tuition and Fees Adjustment Instructor Notes This is entered from the 1098-T form in TaxSlayer. If using the 1040 View, the link from line 34 will take you back to the Education Credits page. October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Comparing Benefits What is Jack’s AGI? Refund? Benefit AGI Refund/Amt Due No Education Benefits $25,092 ($2,060) American Opportunity $24,930 $487 Lifetime Learning $24,651 ($1193) Business Expense $21,212 ($893) Tuition and Fees $20,951 ($1378) Examine the 1040 and note the changes October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Extended Discussion Jack is interested in taking a class at a fitness center that teaches coaches how to train their athletes on strength and fitness. Cost is $300. He asks if he could use this as an education benefit? Instructor Notes This can be an optional discussion question to have the volunteers use the tabs in Pub 4012. Is this class eligible for either the AOC or LLC? Could it be a business expense? October 28, 2016 LC & Instructor Training

Unrestricted Scholarship Example Immersion Lesson Filing Status and More 9/12/2018 Unrestricted Scholarship Assume that Jack’s scholarship is unrestricted How would you use the scholarship to optimize the return? One option Report the scholarship as taxable income on 1040 Line 7 Use only $2,000 for AOC (100%) as second $2,000 is only worth 25% Use the rest ($4,700 + $350 + $125) as business expense to reduce overall tax (15% + 15.3% SE Tax) Instructor Notes This part of the exercise and discussion should probably be used with experienced (Master) Counselors only. Instructors should pose the question and have the Counselors discuss options before presenting the option. Instructors may want to have experienced Counselors use the Bogart Education Calculator October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Comparing Benefits What is Jack’s AGI? Refund? Benefit AGI Refund/Amt Due No Education Benefits $25,092 ($2,060) American Opportunity $24,930 $487 Lifetime Learning $24,651 ($1193) Business Expense $21,212 ($893) Tuition and Fees $20,951 ($1378) Unrestricted Scholarship $23,283 $942 Examine the 1040 and note the changes October 28, 2016 LC & Instructor Training

Example Immersion Lesson Filing Status and More 9/12/2018 Questions October 28, 2016 LC & Instructor Training