TaxSeminarforGraduateStudents

Education-RelatedIncomeandExpensesFebruary7,2018

Disclosure

• Thematerialspresentedintoday’sworkshopareforinformationalpurposesonlyandnotforthepurposeofprovidinglegaloraccountingadvice.Anyinformationcontainedinoraccompanyingthispresentationisnotintendedorwrittentobeusedasadvocatingforthepropertreatmentofareportingpositionuniquetoanindividualperson’scircumstances.

• Itisnotintendedorpresentedtobeused,anditcannotbeused,byanyoneforthepurposeofavoidingpenaltiesthatmaybeimposedbyfederaltaxlaw. Youshouldcontactyourattorneyortaxprofessionaltoobtainadvicewithrespecttothepropertreatmentapplicabletoanyparticularsituation.

• ThegoalofthispresentationistogiveageneraloverviewoftheU.S.federalincometaxregimewithafocusoncertainauthorizedcreditsanddeductions. Useofthisinformationdoesnotcreateanattorney-clientrelationship. AnyopinionsexpressedaretheopinionsoftheindividualauthorandmaynotreflectthepositionofTheUniversity.TheUniversityisnotresponsibleforanypositionstakenonanindividual’sreturn.

Agenda

1. Expectations2. WhatisForm1040?3. HowdoIreportmyincome?4. Forwhicheducationcredits/deductionsamIeligible?5. Exampletaxcalculation6. Briefly:AffordableCareAct7. Additionalresources

Expectations:Thisseminardoesnotcover…

1. ReportingrequirementsforinternationalstudentsØ http://world.utexas.edu/isss/tax

2. Income/deductionsoutsideofeducation-relateditems

ØWewillnottalkaboutdependents,homemortgageinterestdeductions,interestincome,dividendincome,partnershipincome,capitalgains/losses,etc.

3. Wemaybriefly discusshealthcare/taxreform

Form1040

• Personalinformation

• Filingstatus

• PresidentialElectionCampaign

• Exemptions

Education-RelatedIncome

•RA/TAwages(FormW-2)•Scholarshipandfellowshippayments(Form1098-T)•Other?Tutor/Freelance

HowdoIreportmyincome?RA/TAWages(FormW2)

TheUniversityofTexasatAustin

18,000.00 1,800.00

DD6,000.00COLINKOUTNEY

74-6000203

HowdoIreportmyincome?Scholarships/Fellowships

TheUniversityofTexasatAustin

ColinKoutney

10,000.00

30,000.00

X XUTEID

HowdoIreportmyincome?Tax-FreeFellowships/Scholarships

Ascholarshiporfellowshipistax-freeonlyif:

1. Youareacandidateforadegreeataneligibleeducationinstitution,

2. Youusethescholarshiporfellowshiptopayqualifiededucationexpenses,and

3. Itdoesnotrepresentpaymentforteaching,researchorotherservices(fee-for-service)requiredasaconditionforreceivingthescholarship

HowdoIreportmyincome?Tax-FreeFellowships/Scholarships

WhatareQualifiedEducationExpenses?• Forpurposesoftax-freescholarshipsorfellowships,theseareexpensesfor:

• Tuitionandfeesrequiredtoenrollatorattendaneligibleeducationalinstitution(see1098-T),and

• Course-relatedexpenses,suchasfees,books,suppliesandequipmentthatarerequiredforthecoursesattheeligibleeducationalinstitution• TheseitemsMUSTbeREQUIRED ofallstudentsinyourcourseofinstruction

HowdoIreportmyincome?Tax-FreeFellowships/Scholarships

WhatareNOT QualifiedEducationExpenses?

• Roomandboard,• Travel,• Research,• Clericalhelp,or• Equipmentorotherexpensesthatarenotrequiredforenrollmentinorattendanceataneligibleeducationalinstitution

HowdoIreportmyincome?Scholarships/Fellowships

30,000

030,000

30,0000

20,000

10,000

10,00020,000

TaxableScholarships/FellowshipsgotoLine7ofForm1040

SCH20,000 38,000

ForwhichcreditsanddeductionsamIeligible?

Education-RelatedDeductions&Credits

•AmericanOpportunityCredit• LifetimeLearningCredit• Studentloaninterestdeduction• Tuitionandfeesdeduction

Whatisthedifferencebetweenacreditandadeduction?

•Ataxdeduction reducesyourtaxableincome• Itsvalue(yourtaxsavings)willdependonyourtaxrate

•Ataxcredit directlyreducesyourtaxliability• Each$1oftaxcreditreducesyourtaxliabilityby$1

Whatisthedifferencebetweenacreditandadeduction?

Baseline TaxDeduction TaxCredit

Income 1,000 1,000 1,000

TaxDeduction 0 (100) 0

TaxableIncome 1,000 900 1,000

TaxDue(20%) 200 180 200

TaxCredit 0 0 (100)

TotalTaxDue 200 180 100

Whatisthedifferencebetweenacreditandadeduction?

Baseline TaxDeduction TaxCredit

Income 1,000 1,000 1,000

TaxDeduction 0 (100) 0

TaxableIncome 1,000 900 1,000

TaxDue(10%) 100 90 100

TaxCredit 0 0 (100)

TotalTaxDue 100 90 0

Forwhichcredits amIeligible?NoDoubleBenefits!!!!

• Youcannot:• ClaimaLifetimeLearningCreditand AmericanOpportunityCreditduringthesameyear

• Claimacreditbasedonqualifiededucationexpensespaidwithtax-freeeducationalassistance(suchasafellowship/scholarship)

•UseForm8863toclaimeithercredit

ForwhichcreditsamIeligible?

ForwhichcreditsamIeligible?AmericanOpportunityCredit

•AvailableONLYforthefirst4yearsofpostsecondaryeducation(mostuseinundergrad)•Mustbepursuingadegree•Mustbeenrolledatleasthalf-time•Qualifiededucationexpenses• Tuitionandfeesrequiredforthestudent'senrollmentorattendanceataneligibleeducationalinstitution• Books,supplies,andequipmentneededforacourseofstudy,whetherornotthematerialsarepurchasedfromtheeducationalinstitutionasaconditionofenrollmentorattendance

ForwhichcreditsamIeligible?AmericanOpportunityCredit

•Maximumamountofthecreditis$2,500perperson

•Calculation:• 100%creditforthefirst$2,000ofqualifiededucationexpensespaidbytheeligiblestudent,and• 25%creditforthenext$2,000ofqualifiededucationexpensespaidbytheeligiblestudent

• Ifyoupaidatleast$4,000inqualifiededucationexpenses,youcanclaimthefullcredit

ForwhichcreditsamIeligible?LifetimeLearningCredit

•Availableforallyearsofpostsecondaryeducationandforcoursestoacquireorimprovejobskills• Unlimitednumberofyears

• Studentdoesnotneedtobepursuingadegreeorothereducationalcredential•Qualifiededucationexpenses:• Tuitionandfeesrequiredforthestudent'senrollmentorattendanceataneligibleeducationalinstitution• Books,supplies,andequipmentonlyifrequiredtobepaidtotheinstitutionasaconditionofenrollmentorattendance

ForwhichcreditsamIeligible?LifetimeLearningCredit

•Maximumof$2,000perreturn

•Calculation:•20%ofthefirst$10,000ofqualifiededucationexpenses

ForwhichdeductionsamIeligible?StudentLoanInterestDeduction

•QualifiedEducationExpensesforstudentloansaredifferent!!• Tuitionandfees• Roomandboard• Nomorethanthegreaterof(1)themaxlistedbyUTaspartof“costofattendance”or(2)theactualamountpaidtohousingownedandoperatedbytheuniversity

• Requiredbooks,suppliesandequipment• Othernecessaryexpenses(suchastransportation)

ForwhichcreditsanddeductionsamIeligible?StudentLoanInterestDeduction

•Maxbenefitis$2,500• Lesserof$2,500ortheinterestyoupaidintheyear• Checkform1098-E

• Yourstudentloan:• Musthavebeentakenoutsolelytopayqualifiededucationexpenses,and• Cannotbefromarelatedpersonormadeunderaqualifiedemployerplan

• Enrolledatleasthalf-timeinadegreeprogram

ForwhichdeductionsamIeligible?StudentLoanInterestDeduction

Overview:WhatshouldIdo?

•Remember:youcan’tdouble-dip!

• Qualifiededucation-relatedexpensescanonlybeusedtowardonepurpose• Reducingtaxableamountofscholarship/fellowship• LifetimeLearningCreditorAmericanOpportunityCredit• StudentLoanInterestDeduction• Roomandboardcounts!

•A$1credit willreduceyourtaxexpenseby$1whereasa$1deduction willreduceyourtaxexpensebylessthan$1.

HowdoIproceed?

• Ingeneral,acreditisbetterthanadeduction,sowhenattackingyourtaxreturn,lookatyourcreditopportunitiesfirst.

• Let’sdoanexample!

Example:KatieFacts

•Katieissinglewithnochildren.

• Shereceived$30,000fellowshipincome,$25,000RAincomeandpaid$21,000inqualifiededucationexpenses.

• Shedoesnothaveastudentloan.

Example:KatieFacts,Continued

• Somebasics:• Everyoneisentitledtoastandarddeductionof$6,300andpersonalexemptionof$4,000• Taxratescheduleforsingle-filers2015:

IfTaxableIncomeis: TheTaxis:

Below$9,225 10% oftaxableincome

Over$9,225 butbelow$37,450 $922.50+15% ofexcessover$9,225

Over$37,450but below$90,750 $5,156.25+25%ofexcess over$37,450

Over$90,750butbelow$189,300 $18,481.25+28%ofexcessover$90,750

Over$189,300butbelow $411,500 $46,075.25+33%ofexcessover$189,300

Over$411,500butbelow$413,200 $119,401.25+35%ofexcessover $411,500

Greaterthan$413,200 $119,996.25+39.6%ofexcess over$413,200

Example:KatieHowtoreport:• Katieoffsetsherfellowshipwithherqualifiededucationexpenses.

Form1040 Description Amount Calculation

Line7 Income $34,000 $30,000- $21,000+$25,000

Line33 Studentloaninterest $0

Line34 Tuitionandfees $0

Line40 Standarddeduction $6,300

Line42 Personal exemption $4,000

Line43 Taxableincome $23,700 $34,000- $6,300 - $4,000

Line44 Tax $3,094 $922.50+15%[$23,700 - $9,225]

Line50 Educationcredits $0

Line78 Amountdue $3,094

AffordableCareAct• Requiredtohavehealthcareeachmonthof2017(youand yourdependents)

• Eligiblecoverageincludesplansprovidedbyanemployer,HealthInsuranceMarketplacecoverage,andgovernment-sponsoredprograms,suchasMedicareorMedicaid

• Ifyouhadhealthcareforthefullyear,simplychecktheboxonline61andleavetheamountblank

• Employer-providedhealthcoverageisreportedtoyouonform1095-C

AffordableCareAct• Ifyoudidnothavehealthcareforthefullyear,thenyouarerequiredtomakeaSharedResponsibilityPaymentunlessyouqualifyforanexemption• Thepaymentisthegreater of:

• $695peradultand$347.50perchild,or• 2.5%*[householdincome- filingthreshold]

• FileForm8965toreportorclaimexemptions• SeeInstructionsofForm8965forcompletecalculationofSharedResponsibilityPayment

MoreInformation:http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Calculating-the-Payment

TaxReform

• StandardDeductionfor2018• Jointfiler:$24,000• Singlefiler:$12,000

• Nopersonalexemptions• Mostindividualprovisionssunsetafter2025

AdditionalResources

• VITA:http://foundcom.org/financial-stability/austin-tax-preparation/

• IRSwebsite:• www.irs.gov• Allformsandinstructions• Publication970includesalleducation-relatedexplanations,creditsanddeductions• AppendixBhasaniceoverviewofthecredits/deductions• Interactivecalculator:http://www.irs.gov/uac/Am-I-Eligible-to-Claim-an-Education-Credit%3F

• Publication17coversindividualtaxesmorebroadly