Education Tax Credits Help You Pay for College

By Warrior Accounting and Consulting Services

Are you planning to pay for college in 2016? If so, money you paid for higher education can mean tax savings on your tax return when you file next year. If you, your spouse or your dependent took post-high school coursework last year, you may be able to take advantage of education credits that can help you with the cost of higher education. Taking advantage of these education tax credits can mean tax savings on your federal tax return by reducing the amount of tax you owe. Here are some important facts you should know about education tax credits.

American Opportunity Tax Credit:

  • You may be able to claim up to $2,500 per eligible student.
  • The credit applies to the first four years at an eligible college or vocational school.
  • It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
  • It is available for students earning a degree or other recognized credential.
  • The credit applies to students going to school at least half-time for at least one academic period that started during the tax year.
  • Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

Lifetime Learning Credit:

  • The credit is limited to $2,000 per tax return, per year.
  • The credit applies to all years of higher education. This includes classes for learning or improving job skills.
  • The credit is limited to the amount of your taxes.
  • Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.

The Tuition and Fees Deduction is:

  • Claimed as an adjustment to income.
  • Claimed whether or not you itemize.
  • Limited to tuition and certain related expenses required for enrollment or attendance at eligible schools.
  • Worth up to $4,000.

The following applies to all three credits and deductions as well:

  • The credits apply to an eligible student. Eligible students include you, your spouse or a dependent that you list on your tax return.
  • You must file Form 1040A or Form 1040 and complete Form 8863, Education Credits, to claim these credits on your tax return.
  • Your school should give you a Form 1098-T, Tuition Statement, by February 1, 2017, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
  • You can’t claim either credit if someone else claims you as a dependent.
  • You can’t claim either AOTC or LLC and the Tuition and Fees Deduction for the same student or for the same expense, in the same year.
  • The credits are subject to income limits that could reduce the amount you can claim on your return.
  • Use the Interactive Tax Assistant tool at to see if you’re eligible to claim these education tax credits.

Even if you can’t take advantage of any of these tax credits, there could be other education-related tax benefits that you can claim.

By Warrior Accounting and Consulting Services

7 ways Millennials can get a jump-start on retirement planning

By Jeff Reeves / USA TODAY Money

It’s quite fashionable these days to moralize about the shortcomings of the entire Millennial generation. And the latest fodder for critics is a recent survey by finance site that shows more than 50% of those ages 18 to 34 have less than $1,000 in savings.

But before you wag a finger at those young whippersnappers, keep in mind the hard reality is that Americans of every age stink at saving. According to finance portal Go Banking Rates, 62% of all Americans have less than $1,000 saved.

But rather than debate which generation is worse with money, it’s much more helpful to think about how to build up your savings and make sure you’re one of those in the minority who are actually prepared.

And the good news for Millennials is that, with time on their side, there are a few very simple but powerful ways to ensure they have a nice nest egg come retirement. Here are seven:

• Pay yourself first. “The best piece of advice I always give people to start is to save early and save often,” says Jamie Hopkins, retirement income program co-director at The American College of Financial Services. That means making savings a budget priority, socking away that cash before it goes to any other expenses —– including your regular bills. A responsible budget with built-in savings instills discipline and prevents the temptation of dipping into your nest egg for discretionary purposes, Hopkins said, but even spendthrifts know better than to miss rent or a car payment because of a trip to the mall.

• Put your money to work. Saving alone probably isn’t enough for most Millennials to retire comfortably, says Bill Liatsis, CEO and co-founder of lending and finance site CreditIQ. That means getting over hang-ups about risks in the stock market. “There probably hasn’t been a generation that trusts investments and the market less than Millennials, but if they want to retire one day, at some point you have to be exposed to the leverage of U.S. GDP,” he says. “That’s what has carried every other generation through to retirement.”

• Get every penny of your 401(k) match. If your employer offers some kind of matching funds to 401(k) contributions, “Don’t leave free money on the table,” Hopkins says. Make sure you’re taking full advantage of any match.

• Consider a Roth IRA. After you’ve gotten the most out of your 401(k) match, Hopkins recommends any additional savings be diverted into a Roth IRA. That’s because the money in a 401(k) doesn’t have any taxes incurred on it until you withdraw the funds, while taxes on Roth IRA contributions are paid upfront. Unless you’re lucky enough to be making a plush salary right out of college, chances are the tax bracket you’re in during your 20s will be lower than the rate you’ll incur later, Hopkins says. That ultimately means less of your nest egg goes to the IRS come retirement.

• Keep investments simple. After you set up your 401(k) or a Roth IRA, you might be confused or even intimidated by all the investment options out there. But don’t be. Because Millennials have some 30 years until retirement, a lot of the day-to-day volatility of the stock market will be a non-factor, says Scott Bishop, director of financial planning at STA Wealth. “Just pick one balanced fund or a target-date fund instead of picking eight mutual funds and trying to chase returns,” he says. After all, since the Depression there has never been a single period of 20 consecutive years where the stock market hasn’t gone up in value. Be patient, and keep it simple, Bishop advises.

• Think beyond savings. A crucial part of retirement planning involves thinking about financial security for you and your family should the unexpected happen, Bishop says. That involves disability insurance, life insurance and health insurance. “Don’t skimp or go naked without insurance just to save a couple of bucks,” Bishop says.

• Be wary of advice from peers or parents. Many Millennials don’t trust financial advisers in the wake of the financial crisis, Bishop says. But that could be a big mistake if they take advice from inexperienced peers or their parents instead. “The problem with these folks, who are probably really well-intentioned, is that they’re inexperienced,” he says. This can be particularly troublesome, Bishop says, considering many Millennials have parents who never held student loans and have a pension plan in retirement — two major differences that make their retirement planning quite different.

By Jeff Reeves / USA TODAY Money

Still Time to Make 2015 IRA Contributions

If you haven’t already finished your 2015 tax returns you probably should. And while you’re at it, you should probably look into making one last contribution to your IRA (Traditional and/or Roth). If you haven’t maxed out your Roth IRA for 2015, which is $5,500, you should strongly consider making one last contribution.

If you haven’t filed your 2015 taxes, hopefully you are to see a return from both federal and state so you can send those proceeds direction to your Roth IRA. On top of that, you should really challenge yourself to make one or two more deposits before the Monday, April 18, 2016 deadline (11:59 pm EST). This deadline is exactly five weeks from today, and gives you plenty of time to make at least two deposits (one from each paycheck).

Push yourself to keep contributing to your Roth IRA. Your future self will thank you in 30+ years.

Millennials fear tax season more than other age groups do

Millennials may be marked by their confidence, but a new survey by NerdWallet and Harris Poll reveals one thing they aren’t so sure about: filing taxes.

The online survey of more than 1,600 U.S. adults found that 80% of taxpayers ages 18-34 who filed taxes last year and plan to file this year say they’re fearful about some aspect of preparing their taxes. That’s the highest of any age group. The average among all age groups was 69%.

Almost a quarter (22%) of those nervous Millennials say their biggest worry is making a mistake on their returns. Surprisingly, the survey found Millennials were also more likely than other adults to fill out on paper and mail in their tax returns, with 17% saying that’s how they filed.

“In some ways, it makes sense — Millennials tend to have less experience with a deeply confusing tax code, less cash to seek professional help and less need for the more complicated returns that having children or a mortgage can bring,” says Liz Weston, NerdWallet columnist and personal finance expert.

Read the full article Millennials fear tax season more than other age groups do by Tina Orem of NerdWallet