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College Families Overpaid The IRS – Again!
College families who made their best guess as to which of the Education Tax Incentives would save them the most on their income taxes have put their 2004 tax returns to bed. However, for many, a sigh of relief may be a bit premature and inappropriate. Countless families, even some assisted by professional tax preparers, chose incorrectly and have significantly overpaid the IRS – AGAIN!
Mark Twain once said, “No man’s life, liberty, or property are safe while the legislature is in session,” and never have truer words been spoken!
On June 6, 2001, President Bush signed HR 2014 into law. This created The Tuition and Fees Deduction, based on Senator Charles E. Schumer's (D-NY) Make College Affordable Act. However, Congress presented and the President signed a watered down version of the Senator's proposal and consequently, it doesn't work for the families who need it the most!
Senator Schumer had been tirelessly championing legislation that would allow families, including independent students, to deduct a portion of their college expenses on their taxes. The Senator’s Make College Affordable Act, as originally proposed, would have given millions of American families the opportunity to deduct up to $12,000 per year from their total incomes to help reduce the rising costs of college tuition and related expenses. Unfortunately, and to the detriment of untold numbers of taxpayers with students in college, the Tuition and Fees Deduction allows a mere deduction of $3,000 for tax years 2002-2003, and $4,000 for tax years 2004-2005. The Deduction sunsets after 2005.
To many families, an annual eight or nine thousand dollars could mean the difference of being forced to settle for a local community college as opposed to sending their student to a state school. Arguably, America’s future rests with its educated youth, and this is no way to treat those who will hold the fate of our country in their hands.
The drastic slashing by Congress of Senator Schumer’s proposed bill and President Bush’s failure to send it back to them is the case in point substantiating that the government of the United States doesn’t give a hoot in hell about the financial struggle the average American parent endures in their endless pursuit of the American dream for their children!
Effective legislation to make college expenses tax deductible is long overdue and began with the Tax Payer Relief Act of
1997, which Senator Schumer also supported and voted for. The Act created two education tax credits, the HOPE Scholarship Credit (maximum $1,500 a year for 2 years), and the Lifetime Learning Credit (maximum $1,000 increasing to $2,000 in 2003).
Note: A tax deduction lowers taxable income, and the savings depends on the filer’s tax bracket. A tax credit directly lowers taxes by the amount of the credit, dollar for dollar, regardless of the filer’s tax bracket.
Although it certainly was a step in the right direction, the Tax Payer Relief Act of 1997 fell far too short in providing major tax relief for America’s college families, especially in view of soaring tuition costs and other related expenses that families endure year after year to send their kids to college. Nonetheless, the real tragedy for America is the Tuition and Fees Deduction, which, when taken by taxpayers who qualify for The HOPE Scholarship Credit or The Lifetime Learning Credit, will actually cause them to overpay their taxes by hundreds of dollars each year!
Affluent single and head of household taxpayers whose incomes exceed $51,000, and joint filers whose incomes exceed $102,000, will not qualify for the HOPE Scholarship or Lifetime Learning Credit, and are therefore, the only ones who actually benefit from taking the Tuition and Fees Deduction. Thus, camouflaged as tax relief to offset college costs for all of America’s college families, all Congress actually did was Robin-Hoodwink most lower and middle income families by taking from them and giving to the rich! The wisdom of Mark Twain’s words cannot be denied.
This is one of a series of articles by college admissions and financial aid expert, Reecy Aresty, based on his book, “Getting Into College And Paying For It!” For further information including how to obtain the complete SPECIAL REPORT on the Tuition And Fees Deduction with refund eligibility, please visit www.thecollegebook.com.
About the Author
For almost three decades, financial advisor Reecy Aresty has helped thousands of families protect their assets, increase their wealth, and reduce their taxes. His book, “Getting Into College And Paying For It,” reveals what colleges don’t want their applicants to know! Filled with trade secrets and insider information, it is guaranteed to give students the all-important edge in admissions, and parents countless legal ways to reduce the cost.
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