This week and next week's discussion board topics are going to be pretty different. Instead of asking you a question that will require a lot of self-reflection, we're going to use some real-life examples that could prove pretty beneficial for your own personal financial situations. I'm going to provide a lot of information below and have you respond with your own hypothetical (or actual, if you want) examples. The discussion portion is to simply work together to make sure everyone is following the proper approaches. For this week, we're going to talk about one element of accounting that directly impacts you as a student here at CBC--The American Opportunity Tax Credit (AOTC). The AOTC was a component of the Recovery Act of 2009 (aka the Stimulus Package) and has been maintained and supported by both Democratic and Republican administrations ever since. It is designed to help students better afford college and incentivize more people to pursue higher education by providing a financial benefit. Here's how it works: For the first four years that a student pur higher education and files taxes, they are eligible to claim the AOTC. The AOTC provides a tax credit which offsets the cost of "Qualified Educational Expenses" (i.e. tuition, room/board, fees, textbooks, and other "required" expenses for being a student) through the formula shown below: 1. The first $2,000 spent in a calendar year are credited at a 100% rate (le, if you spend $2,000 on college, you will receive a $2,000 tax credit when you file your taxes the following year) 2. The second $2,000 spent in a calendar year are credited at a 25% rate (l.e, if you spend $4,000 on college, you will receive $2,000 for the first $2,000 spent and $500--which is 25% of $2,000 for the second $2,000 spent). Taken together, if you spend at least $4,000 on qualified education expenses in a year, you can receive up to $2,500 back (provided you have at least $2,500 in tax liabilities). However, even if you don't owe any taxes (perhaps you're a full-time student who doesn't work), you can STILL benefit from utilizing the AOTC because it's actually what's known as a REFUNDABLE tax credit (up to $1,000). Therefore, even if you don't normally owe taxes, you can still receive up to a $1,000 refund. Let's show how this works using current tax tables: Married Filing Jointly Tax Rate Single Filer Income Range Income Range 10% 0-9,700 0-19,400 12% 9,701-39,475 19,401-78,950 22% 39,476-84,200 178,951-168,400 24% 84,201-160,725 168,401-321,450 3296 160,726-204,100 321.451-408,200 35% 204,101-510,300 408,201-612,350 37% 510,301. 612,351+ Standard Deduction: Single-Filer $12,000; Married, Filing Jointly (MFJ) = $24,000 Let's assume you're a student who is single, has no children, and earns $35,000/year and you have $3,000 withheld from your paycheck during the course of the year for Federal Taxes. Using the current tax tables below, we can make the following calculations: Gross Income: $35,000 Minus Standard Deduction: $12,000 = 23,000 in Taxable Income 23,000 falls in the 12% bracket for a single-filer...HOWEVER, this does NOT mean that we simply multiply 12% by $23,000. We have a system in the United States known as progressive taxation, where we get to exhaust each lower tax rate before moving onto the next one. Therefore, here's our approach to calculating our taxes: We get to use ALL $9,700 of the 10% bracket before we have to start calculating our taxes at 12%. Therefore, we simply take our taxable income after the standard deduction (in this case, $23,000) and subtract 9,700 (the 10% bracket). This leaves us with 23,000-9,700 = 13,300 in remaining taxable income for the 12% bracket. So we perform the following calculations: 9,700 x 10% (bracket 1) = 970 + 13,300 x 12% (bracket 2) = 1,596 Total tax liability = $2,566 So, does this mean that you write a check to the government for $2,566? No. Keep in mind that the government withheld $3,000 from our paychecks throughout the year in anticipation that we'd owe an amount close to that sum. However, we didn't end up owing exactly $3,000, so we're actually entitled to a refund of the difference (3,000 withheld - 2,566 in tax liability = $434 refund). That's it. That's how taxes work. You can obviously change numbers around and personal situations (married/single, income, etc.), but the process is pretty straight-forward. So, let's show how the AOTC makes the situation a bit different. We'll use the same example as above, but this time we're going to say that the student is attending CBC and spends $4,500 on tuition, books, etc. during the course of the year. First, we calculate taxes as we normally would and nothing is different. Tax credits are taken AFTER we know our actual tax liability (which is actually really awesome and beats a tax deduction--which we can talk about later). Therefore, if we assume that our total tax liability is $2,566, that's where we can begin to start the conversation about the benefits of the AOTC Amerrenn opportunity Tax credit Because the student in this scenario spent at least $4,000 on qualified educational expenses during the year, the AOTC calculation is going to be 100% of the first $2,000 spent + 25% of the second $2,000 spent (NOTE-any amounts over $4,000 don't count for AOTC...sorry). 100% x 2,000 = 2,000 + 25% x 2,000 = 500 Total AOTC = $2,500 What does this mean and how do we use this information? Simply, we subtract the AOTC from our total tax liability. In this case that means we take our $2,566 tax liability and subtract the $2,500 from AOTC to come up with a "new" tax liability of just $66. Keep in mind that we still had $3,000 withheld from our paychecks throughout the year, so when we file our taxes, instead of getting a refund of $434 (3,000 -2,566), we now get a refund of $2,934 (3,000 - 66). I'm sure we'd be happy with $434...but we'd be even happier with nearly $3,000! FILE YOUR TAXES AND CLAIM YOUR CREDITS! So, here's what I'm going to ask you all to do for this week. I want you to create a scenario (it can be real-life or made-up) and calculate the taxes for that situation. THEN, calculate the AOTC for that individual and show the final result. Show your steps and walk through the process as demonstrated above. For your responses to each other, I am going to trust you to check each other's work and offer feedback if anything is out-of-line. The goal is to help each other learn! I won't be holding response posts to the same rigor as normal weeks (i.e., you don't need the same word count, etc., but that means you should likely respond to more students than you might do in a normal week--try to make sure that everyone has their work checked, so don't all respond to the same person!) If you make a mistake and someone corrects you, you won't lose points--the goal is just to help one another. Please feel free to respond to each other with questions as you work through these discussions. Simply, we sul ract the AO from our total tax liability. In this case that means we take our $2,566 tax liability and subtract the $2,500 from AOTC to come up with a "new" tax liability of just $66. Keep in mind that we still had $3,000 withheld from our paychecks throughout the year, so when we file our taxes, instead of getting a refund of $434 (3,000 - 2,566), we now get a refund of $2,934 (3,000 - 66). I'm sure we'd be happy with $434...but we'd be even happler with nearly $3,000! FILE YOUR TAXES AND CLAIM YOUR CREDITS! So, here's what I'm going to ask you all to do for this week. I want you to create a scenario (it can be real-life or made-up) and calculate the taxes for that situation. THEN, calculate the AOTC for that individual and show the final result. Show your steps and walk through the process as demonstrated above. For your responses to each other, I am going to trust you to check each other's work and offer feedback if anything is out-of-line. The goal is to help each other learn! I won't be holding response posts to the same rigor as normal weeks (1.e., you don't need the same word count, etc., but that means you should likely respond to more students than you might do in a normal week--try to make sure that everyone has their work checked, so don't all respond to the same person!) If you make a mistake and someone corrects you, you won't lose points--the goal is just to help one another. Please feel free to respond to each other with questions as you work through these discussions. You can make up your own scenerio. It can be a short answer or example. we'll use the same at the student is attending CBC and mg the course of the year. This week and next week's discussion board topics are going to be pretty different. Instead of asking you a question that will require a lot of self-reflection, we're going to use some real-life examples that could prove pretty beneficial for your own personal financial situations. I'm going to provide a lot of information below and have you respond with your own hypothetical (or actual, if you want) examples. The discussion portion is to simply work together to make sure everyone is following the proper approaches. For this week, we're going to talk about one element of accounting that directly impacts you as a student here at CBC--The American Opportunity Tax Credit (AOTC). The AOTC was a component of the Recovery Act of 2009 (aka the Stimulus Package) and has been maintained and supported by both Democratic and Republican administrations ever since. It is designed to help students better afford college and incentivize more people to pursue higher education by providing a financial benefit. Here's how it works: For the first four years that a student pur higher education and files taxes, they are eligible to claim the AOTC. The AOTC provides a tax credit which offsets the cost of "Qualified Educational Expenses" (i.e. tuition, room/board, fees, textbooks, and other "required" expenses for being a student) through the formula shown below: 1. The first $2,000 spent in a calendar year are credited at a 100% rate (le, if you spend $2,000 on college, you will receive a $2,000 tax credit when you file your taxes the following year) 2. The second $2,000 spent in a calendar year are credited at a 25% rate (l.e, if you spend $4,000 on college, you will receive $2,000 for the first $2,000 spent and $500--which is 25% of $2,000 for the second $2,000 spent). Taken together, if you spend at least $4,000 on qualified education expenses in a year, you can receive up to $2,500 back (provided you have at least $2,500 in tax liabilities). However, even if you don't owe any taxes (perhaps you're a full-time student who doesn't work), you can STILL benefit from utilizing the AOTC because it's actually what's known as a REFUNDABLE tax credit (up to $1,000). Therefore, even if you don't normally owe taxes, you can still receive up to a $1,000 refund. Let's show how this works using current tax tables: Married Filing Jointly Tax Rate Single Filer Income Range Income Range 10% 0-9,700 0-19,400 12% 9,701-39,475 19,401-78,950 22% 39,476-84,200 178,951-168,400 24% 84,201-160,725 168,401-321,450 3296 160,726-204,100 321.451-408,200 35% 204,101-510,300 408,201-612,350 37% 510,301. 612,351+ Standard Deduction: Single-Filer $12,000; Married, Filing Jointly (MFJ) = $24,000 Let's assume you're a student who is single, has no children, and earns $35,000/year and you have $3,000 withheld from your paycheck during the course of the year for Federal Taxes. Using the current tax tables below, we can make the following calculations: Gross Income: $35,000 Minus Standard Deduction: $12,000 = 23,000 in Taxable Income 23,000 falls in the 12% bracket for a single-filer...HOWEVER, this does NOT mean that we simply multiply 12% by $23,000. We have a system in the United States known as progressive taxation, where we get to exhaust each lower tax rate before moving onto the next one. Therefore, here's our approach to calculating our taxes: We get to use ALL $9,700 of the 10% bracket before we have to start calculating our taxes at 12%. Therefore, we simply take our taxable income after the standard deduction (in this case, $23,000) and subtract 9,700 (the 10% bracket). This leaves us with 23,000-9,700 = 13,300 in remaining taxable income for the 12% bracket. So we perform the following calculations: 9,700 x 10% (bracket 1) = 970 + 13,300 x 12% (bracket 2) = 1,596 Total tax liability = $2,566 So, does this mean that you write a check to the government for $2,566? No. Keep in mind that the government withheld $3,000 from our paychecks throughout the year in anticipation that we'd owe an amount close to that sum. However, we didn't end up owing exactly $3,000, so we're actually entitled to a refund of the difference (3,000 withheld - 2,566 in tax liability = $434 refund). That's it. That's how taxes work. You can obviously change numbers around and personal situations (married/single, income, etc.), but the process is pretty straight-forward. So, let's show how the AOTC makes the situation a bit different. We'll use the same example as above, but this time we're going to say that the student is attending CBC and spends $4,500 on tuition, books, etc. during the course of the year. First, we calculate taxes as we normally would and nothing is different. Tax credits are taken AFTER we know our actual tax liability (which is actually really awesome and beats a tax deduction--which we can talk about later). Therefore, if we assume that our total tax liability is $2,566, that's where we can begin to start the conversation about the benefits of the AOTC Amerrenn opportunity Tax credit Because the student in this scenario spent at least $4,000 on qualified educational expenses during the year, the AOTC calculation is going to be 100% of the first $2,000 spent + 25% of the second $2,000 spent (NOTE-any amounts over $4,000 don't count for AOTC...sorry). 100% x 2,000 = 2,000 + 25% x 2,000 = 500 Total AOTC = $2,500 What does this mean and how do we use this information? Simply, we subtract the AOTC from our total tax liability. In this case that means we take our $2,566 tax liability and subtract the $2,500 from AOTC to come up with a "new" tax liability of just $66. Keep in mind that we still had $3,000 withheld from our paychecks throughout the year, so when we file our taxes, instead of getting a refund of $434 (3,000 -2,566), we now get a refund of $2,934 (3,000 - 66). I'm sure we'd be happy with $434...but we'd be even happier with nearly $3,000! FILE YOUR TAXES AND CLAIM YOUR CREDITS! So, here's what I'm going to ask you all to do for this week. I want you to create a scenario (it can be real-life or made-up) and calculate the taxes for that situation. THEN, calculate the AOTC for that individual and show the final result. Show your steps and walk through the process as demonstrated above. For your responses to each other, I am going to trust you to check each other's work and offer feedback if anything is out-of-line. The goal is to help each other learn! I won't be holding response posts to the same rigor as normal weeks (i.e., you don't need the same word count, etc., but that means you should likely respond to more students than you might do in a normal week--try to make sure that everyone has their work checked, so don't all respond to the same person!) If you make a mistake and someone corrects you, you won't lose points--the goal is just to help one another. Please feel free to respond to each other with questions as you work through these discussions. Simply, we sul ract the AO from our total tax liability. In this case that means we take our $2,566 tax liability and subtract the $2,500 from AOTC to come up with a "new" tax liability of just $66. Keep in mind that we still had $3,000 withheld from our paychecks throughout the year, so when we file our taxes, instead of getting a refund of $434 (3,000 - 2,566), we now get a refund of $2,934 (3,000 - 66). I'm sure we'd be happy with $434...but we'd be even happler with nearly $3,000! FILE YOUR TAXES AND CLAIM YOUR CREDITS! So, here's what I'm going to ask you all to do for this week. I want you to create a scenario (it can be real-life or made-up) and calculate the taxes for that situation. THEN, calculate the AOTC for that individual and show the final result. Show your steps and walk through the process as demonstrated above. For your responses to each other, I am going to trust you to check each other's work and offer feedback if anything is out-of-line. The goal is to help each other learn! I won't be holding response posts to the same rigor as normal weeks (1.e., you don't need the same word count, etc., but that means you should likely respond to more students than you might do in a normal week--try to make sure that everyone has their work checked, so don't all respond to the same person!) If you make a mistake and someone corrects you, you won't lose points--the goal is just to help one another. Please feel free to respond to each other with questions as you work through these discussions. You can make up your own scenerio. It can be a short answer or example. we'll use the same at the student is attending CBC and mg the course of the year