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Mike DiSabatino CPA

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Get 'extra credit' for your kids in college

HARVARDGet 'extra credit' for your kids in college

The price tag on a college diploma keeps going up, but at least you might be able to salvage some tax benefits if you're paying the tab.

An Example: If your child is attending college this fall, you may have a chance to claim an enhanced tax break for higher education expenses.

Strategy: Maximize benefits for the American Opportunity Tax Credit (AOTC). This enhanced credit, which was extended by the American Taxpayer Relief Act of 2012 (ATRA), is now available through 2017. If it increases your credit for 2013, you might pay the tuition bill for the second semester— typically due in January of 2014—before the end of this year.The Details: The tax law provides two tax credits for higher education expenses. 

For 2013, the maximum AOTC is $2,500 and is available for up to four years of undergraduate study. (Previously, the maximum credit was only $1,800 and the AOTC was limited to the first two years of study.) In addition, 40% of the enhanced credit is refundable.

In contrast, the maximum allowed for the other tax credit for higher education, the Lifetime Learning Credit (LLC), is $2,000. The LLC may be claimed for only one student in any college year. There's no such restriction on the AOTC.

Both credits, however, phase out for upper-income taxpayers at slightly different levels.

The phaseout for the AOTCoccurs  between $80,000  and$90,000 of modified adjusted gross income (MAGI) for single filers; $160,000 and $180,000 of MAGI for joint filers. In 2013, the phase-out for the LLC occurs between$53,000 and $63,000 of MAGI for single filers: $107,000 and $127,000 for joint filers. No credit is allowed above the upper thresholds.

The alternative tuition deduction, which is claimed above the line, is $4,000 if your adjusted gross income (AGI) is below $65,000 for single filers; $130,000 of AGI for joint filers. It is reduced to $2,000 for an AGI up to $80,000 for single filers; $160,000 for joint filers. It is zero above the upper thresholds. So, some high wage-earners have a better shot at the AOTC.

Note: Unlike the AOTC, the tuition deduction is scheduled to expire after 2013.

 

 

Can a Self-Emplyed person, who is still working full-time skip thier Pension/IRA RMD (Required Minimum Distribution)?No. Generally, you must begin taking "required minimum distributions" (RMDs) from your qualified retirement plans and IRAs after you turn age 70 1/2. Then you must continue taking RMDs for each succeeding tax year. However, you can delay RMDs from qualified plans if you're still working full time and you don't own 5% or more of the company.  There is no such exception for IRAs. Because your Simplified Employee Pension (SEP) is treated as an IRA rather than a qualified plan, you must start taking RMDs after you turn 701/2 whether you arc still working or not.
So, remeber: In any event, full-time workers can't postpone RMDs from an IRA.

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