Education Taxation

Tax Breaks for Education

In 2020, Margery and Philip Brown have three children attending college full-time and they claim all three as dependents. They also have education related expenses for themselves. They paid for the following expenses:

1. Their daughter, Amy, is a Masters student in both Spring 2020 and Fall 2020 at Wake Forest where she received a scholarship for part of her tuition. Her parents paid a total of tuition of $10,000 and room & board of $6,000 (all paid in 2020). Amy purchased her own textbooks at a cost of $1,000.

2. Their son, Brad, is a freshman in Spring 2020 and a sophomore in Fall 2020 at Appalachian State University. His parents paid a total of tuition and fees of $6,300 and room & board of $7,000 (all paid in 2020).

3. Their daughter, Elizabeth, started at UNC-CH as a freshman in Fall 2020. She receives a scholarship that covers her tuition but her parents paid required fees of $1,300. Her parents also paid room & board of $4,600 and textbooks for $1,400.

4. Margery is a teacher with Jackson County and has a professional educators license in North Carolina. To renew her license, she is required to complete 10 semester hours or 15 units of renewal credit every 5 year. She has taken online courses through Western Carolinas College of Education and Allied Professions. She paid tuition and fees of $1,500. She also spent $500 for textbooks. None of her expenses were reimbursed.

5. Philip is a self-employed lawyer. He completed continuing education courses that are required to meet the requirements of North Carolina State law and cost $3,000. (You can ignore any effects on self-employment tax.)

6. Philip is also paying off student loans from law school. He paid $3,200 of interest in 2020.

Other information related to their tax return:
AGI before the effects of education related deductions	130,000
state income tax payments	7,200
real estate taxes	3,400
home mortgage interest	9,700
charitable contributions	5,100

The following outlines the application of the tax formula to Assignment 6:

1. AGI before education deductions
2. Subtract: for AGI education related deductions
   1. Professional education for a self-employed individual
   2. Student loan interest deduction
   3. Tuition & fees deduction
3. AGI
4. Subtract: Itemized Deductions
   1. Taxes (limited to 10,000), interest, and charitable
5. Taxable Income
6. Tax calculate tax on taxable income using the tax rate schedule (write an Excel formula to do the calculation)
7. Subtract: Credits
   1. American Opportunity Credit (AOC)
   2. Lifetime Learning Credit (LL)
      1. Be certain to consider any phase outs
   3. Child Tax Credit - $500 per child >17 (phase out does not start until $400,000 for married-joint)
8. Tax after Credits