College Tax Savings Details

During my vacation, I received a note from Reecy Aresty, author of Getting into College and Paying for It with some late-breaking news on the tax/college front. Here's what he had to report:

Congress Extends Tax Deduction for Millions of College Families
For Some a Gift - for Many the Grinch

Thanks to a last minute effort by Congress, President Bush extended the Tuition and Fees Deduction for one more year.  In keeping with the season, many have described the opportunity as a Christmas present for the 4.7 million families with students in college, but for many all that glitter isn’t gold!*

The Tax Relief and Health Care Act of 2006 which revived it and two others left three roadblocks obstructing taxpayers:

1. For those who are eligible to take the deduction, there is nothing on the 1040 or in the instruction booklet indicating how or where to take it;

2. For those unaware, and most families are, they will miss the opportunity entirely; and

3. *Hundreds of thousands of taxpayers, who previously took or will take the deduction, would save substantially more by taking an Education Credit instead!

Apparently, only those who file electronically will be able to take the deduction easily, and that’s assuming the IRS computers will be geared up by Jan. 12th, but don’t hold your breath. The tax agency also announced it will not be able to process returns claiming this deduction until early February, so don’t file early.

For a taxpayer to actually take the deduction, they must physically write in a ‘T’ on Line 35 of the 1040, and if they are also claiming a deduction for ‘Domestic production activities,’ they must also write in a ‘B’ and “attach a breakdown showing the amounts claimed for each deduction.” 

According to an IRS spokesman, Publication 600, which explains in detail how to take the Sales Tax Deduction, will be mailed to the 3.5 million households who took it last year. Unfortunately, this document makes no mention of the deduction for educator expenses (on Line 23 write in ‘E’), and noticeably absent is any reference to the subject in question.

As usual, misinformation is rampant as demonstrated by this quote from a recent AP story: “The IRS said the deduction for tuition and fees can be claimed on Form 1040, line 35, ‘Domestic production activities deduction,’ by entering ‘T’ on the dotted line to the left of that line.”

Regrettably, there are no dotted lines for Line 35 – they’re on Line 34 and Line 36.  And with 4.7 million families affected, there is no way to guarantee that everyone who is entitled to a deduction will actually receive it.”  Only time will tell, and families will have three years to amend returns if this crucial message reaches them in time.

Comments

[MissPinkKate]

This article doesn't explain what the deduction is, or who is eligible for it, either; so you're not exactly helping the cause, mate :-)

Go to the IRS http://www.irs.gov/ and ther is an article right on the from page that explains these tax credits. Not that I like the IRS, but they should not be held responsible for the late actions of congress in extending these deductions.

As usual, our legislative bodies are a day late and a trillion short!