loaferman[at]adelphia.net wrote:

- quote -

When you have education expenses, there are four ways you
can use them on your tax return to reduce your tax owed. You
have to choose which one way gives you the best outcome, but
you can sometimes split the expenses for different reasons.
Here are the ways:

1. Tuition and Fees Deduction. You accurately described how
this works. It is a deduction from your income. Assuming the
standard deduction and two exemptions, your tax owed without
the deduction would be about $5600. Taking the Tuition and
Fees deduction would reduce your taxes by $600, since you
are in the 15% tax bracket.

2. Schedule A Miscellaneous deduction subject to 2% AGI
limitation. This is for work-related expenses and can
include the cost of books, mileage, etc. in addition to
tuition costs. This gets added to your total itemized
deductions if the costs are more than 2% of your AGI, and
the total amount of your itemized deductions must be greater
than the standard deduction in order for this to be
beneficial. This is usually the least effective, because of
the 2% AGI limitation.

3. Hope Credit. This is for undergraduate tuition & fees for
students who have not yet attained junior status as of the
beginning of the tax year. If you have $2000 or more in
expenses, you can get a credit off your taxes of $1500 if
you qualify. It sounds like this would not work for you
since your wife already has an associates degree.

4. Lifetime Learning Credit. This is for tuition and fees at
a qualified institution. This is also a credit, meaning it
is subtracted from your taxes, not your income. You can get
a credit for 20% of tuition and fees paid, up to $10,000 in
tuition paid. You don't say how much the tuition was you
paid, but let's say it was $10,000. You would then a get a
$2,000 credit off your taxes. With $59,000 in income,
standard deduction and two exemptions, your tax without the
credit would be about $5600. With the lifetime learning
credit of $2000, this would reduce your tax to $3600.
Clearly this is a better outcome than No. 1. Even if your
expenses were only $4000, this would still reduce your taxes
by $800 instead of the $600 with the Tuition & Fees
Deduction.

There are some phaseouts, but with MFJ, they don't start
until $107,000 AGI.

Dennis

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

tobe wrote:
- quote -

Since the OP stated that his wife had already received an
Associates Degree, the HOPE Credit is no longer available to
them.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

<loaferman[at]adelphia.net> wrote
- quote -

You should look at the instructions for line 50 of the 2005
Form 1040. If you qualify, you can get a TAX CREDIT (using
Form 8863) using either the Hope Credit, or the Lifetime
Learning Credit (whichever calculates to a bigger credit).
This REDUCES your TAXES by that amount, not your taxable
income - a MUCH better benefit.

In your example, if your wife's actual education expenses
were $4,000, using the Hope Credit, you would get a tax
credit of $1,500, but only a tax credit of $400 using the
Lifetime Learning Credit.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Brian wrote:

- quote -

........

all things being equal, but then, sometimes they're not.

Just have to work it out all three ways (as of now from tax
years 2005 and earlier)

if the credit is only 20% and individuals' marginal tax rate
is 25%, would that change your mind?

ChEAr$,
Harlan Lunsford, EA n LA

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

loaferman[at]adelphia.net wrote:

- quote -

Only one problem here, and that is the tuition deduction on
page one of the 1040 expired last 12/31 and so far has not
been extended. Whether or not it will be after congress
reconvenes ... well, who can say?

ChEAr$,
Harlan Lunsford, EA n LA

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

loaferman[at]adelphia.net posted:

- quote -

Yes, this is a clear statement of the use of your wife's
tuition as an Adjustment to Income.

However, there is a possible better option. That would
involve a Tax Credit, which is taken on line 50 (using 2005
Line assignments as you did -- but note they are subject to
change each year). It would also require you to complete
Form 8863, but from the examples used above, you would
qualify for that _tax credit_ -- and that would be worth
more than the "Adjustment."

For example, using your figures and standard deductions,
assuming no other dependents, your 2005 "Adjusted" AGI of
$55,000 would be reduced by $10,000 filing MFJ + $6,400 for
the two personal exemptions -- resulting in a taxable income
of $38,600, and a tax of $5,064.

BUT, if you skipped the "Adjustment," your AGI would have
been $59,000, which would be reduced by the same total of
$16,400 for deductions and exemptions -- resulting in a
taxable income of $42,600, and a tax of $5,664.

HOWEVER, this tax would be reduced by the line 50 _Education
tax credit_ of 20% of the actual tuition expenses calculated
on Form 8863. You don't show those figures, but assuming
they were $10,000, this would provide a tax credit of $2,000
in your case (based on the sample figures given).

If you look at the tax due in the calculations above, you'll
see that $2,000 subtracted from $5,664 -- or $3,664 -- is a
more desirable tax payable than $5,064. So clearly, you
would prefer the _tax credit_ over the _adjustment to
income_ alternative.

One final note: You mentioned Student Loans in your
original post. You should also receive a statement of
interest paid on those loans, and this interest payment can
be used as an Adjustment to Income, with an entry on line 33
of Form 2040 (using 2005 Forms). So you should also take
advantage of this opportunity to create a reduction in AGI
-- again, assuming your example information.

Bill

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

First off, thanks to everyone who has replied. It would
appear that my initial post was based upon either my
misunderstanding an article I read online or maybe the
article itself was erroneous. So I am starting over.

It is now my understanding that my wife's college will issue
a form reflecting the tuition she has paid in 2006. I would
begin filling out our 1040 as usual until I get to line 34
(on my 2005 form it was line 34) Tuition and Fees Deduction.
I would then follow the instructions for line 34 to
determine the amount to deduct. Our income would qualify for
the deduction and up to $4,000 looking at the 2005
instructions. This would allow us to subtract a credit of up
to $4,000 off our total income on line 22. Since this would
be our only adjustment the $4,000 would go on line 36 and be
subtracted from line 22. Making our adjusted gross income
$4,000 less than it was before she returned to school.

Example: We check married filing jointly and our 2
exemptions as usual. Let's say we have $59,000 in wages from
our W-2's and that amount pulls down to line 22 total
income. Our only amount in the adjusted gross income section
is line 34 for say the full $4,000. I move the $4,000 amount
down to line 36 then subtract it from the $59,000 online 22.
This leaves me at $55,000 adjusted gross income on line 37
to be pulled over to line 38. From there I would proceed as
normal.

Is this a better understanding? I am sorry to be kind of
confused, but while I have some background in business I am
far from a tax expert. I appreciate you more knowledgable
folks helping out.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

loaferman[at]adelphia.net wrote:

- quote -

I would rather have a credit than a deduction any day.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

<loaferman[at]adelphia.net> wrote:

- quote -

The good news is you have apparently been reading the rules
differently than the IRS reads them.

Ignore the amount of tax withholding or estimated tax. That
will be applied as a credit. Always. Regardless.... So
while it can be a lot of money, it can be ignored for
calculating the effect of lifetime learning crdit you will
get.

Look only at the amount of income tax on form 1040 Line 46.

Your lifetime learning credit goes into reducing that
amount, but not below zero.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I have a question concerning the Lifetime Learning Tax
Credit or something related I may be able to use. My wife
has her associates degree and went back to school in 2006 to
get her bachelor's degree (related to her career if that
factors in, but she is going from associates to bachelors so
it may not). This is all financed through student loans.
With tax time approaching I have been researching how to
file and realize now I should have started sooner, but
anyway here goes.

I assumed that there might have been something that reduced
our taxable income since she is a full-time student but so
far have only found the Lifetime Learning Tax Credit which
instead applies only to reduce tax owed (if any). We both
have in the past few years intentionally overpaid our
federal taxes because we got hit with a big tax bill a few
years back when we under-withheld. With 3 months left in the
year I would doubt we would be owing much if anything in
federal tax. The only way we could get to a $2,000 tax bill
now would probably be if we both withhold $0 from our last
few payhecks of the year but that is risky business in my
mind. Is the Lifetime Learning Tax Credit the only thing
available to us and am I correct that I would have to try
and make sure I ran up a $2,000 tax bill (assuming she would
qualify for the maximum). It would have been tough to figure
out at any point in the year how to run up a $2,000 tax bill
unless you just run it higher and plan to pay.

Unless someone has other ideas my theory is to keep paying
withholding as I am now and hopefully get a refund as usual
at year-end rather than risk screwing up my taxes at this
point and getting in trouble. I don't know why this is not
just a deduction from taxable income, but I suppose they
don't want you to actually use it. Other than the Lifetime
Learning Tax Credit I don't see us getting any other tax
breaks from all that tuition we are paying. I would much
appreciate any advice. Please answer online rather than by
email (old account).

Thanks.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >