Friday, February 22, 2013

Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead


The Internal Revenue Service today reminded parents and students that now is a good time to see if they qualify for either of two college education tax credits or any of several other education-related tax benefits.  In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer. Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.

The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.

For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings.  Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.
All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.
Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 andPublication 970 for details on properly figuring allowable tax benefits.
Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:
  • The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
  • Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
  • The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
  • The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
  • Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.
The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:
  • Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
  • The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
  • Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.
Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.

Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:
  • Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
  • Student loan interest deduction of up to $2,500 per year.
  • Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
  • Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.
The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on IRS.gov.
Posted on 11:56 AM | Categories:

Xero – My Personal Epiphany


Margaret @ Cloud Accounting Buzz writes: Last week I had an epiphany. I attended the annual Xero road show in Sydney and came away a happy Xero-ite! To explain – I have been using the product for a couple of years but without being totally committed to a Xero journey. Now, I think the software solution is more than clever marketing to accountants, that it is starting to live up its promise of being ‘beautiful accounting software’ and will increasingly become a product of choice for the smaller end of the small business market.
I don’t have an accounting or bookkeeping practice so I only need to evaluate the software from the perspective of the end user, I don’t need to consider pratice management integration, so whilst the concept of single ledger may be invaluable to accountants in practice, it is not a priority for the end user. So my journey to becoming a committed Xero-ite is based on the end user experience. Three main factors have influenced me:
  1. First and foremost, due to the significant enhancements that have been delivered over the past couple of years, the product has reached a more mature level with regards to functionality (and more is scheduled for release later this year). This now makes Xero a viable alternative for an increasing number of businesses.
  2. Secondly the company has a dynamic culture (the uniform at the road show was a black t-shirt with the Xero logo and jeans or Xero-blue trousers) and is relatively flat in structure which enables it to respond more quickly and readily to change in the marketplace than some of its competitors which are more structured.
  3. Lastly, although Xero is not an Australian company, it has a 40,000-strong customer base in Australia (I am not sure what is the percentage of total customers worldwide) and therefore has a vested interest in ensuring the software remains both compliant with statutory requirements and is responsive to Australian business processes. Their staff are on the ground here, and keeping their fingers on the pulses of small businesses, bookkeepers and accountants.
These factors combined have helped to sway me into the Xero camp. But from a feature perspective – what are the main pluses of Xero?
For me the number one feature is Bank Rules, where you define conditions to enable Xero to automatically suggest account and GST coding of imported bank statement transactions. This can hugely speed up and increase consistency of cash transaction recording. The more comprehensive the rules, the better the quality in the coding. Only Financial Advisers have access to the other helpful piece of functionality here which is Cash Coding – I guess there is potential for massive error if not used correctly.
I also love the Employee Portal where employees can print pay slips and payment summaries, lodge leave requests and view details. There are plans to extend the portal this year to include lodging tax file numbers.
Being an internet based product with public APIs, Xero can readily connect to add-on software to enhance the range of functionality. Currently there are some 150 add-on solutions available meaning that however non-standard your business model, there is a chance there will be an add-on to cover the gap. (This is where true business efficiencies and return on investment can be obtained – automating and integrating all the business processes,)
Xero puts out new releases every 6-8 weeks which are seamlessly deployed to all users – you just wake up in the morning and the changes are there. This is a win-win solution – clients don’t have to wait and be bombarded with an annual release with a host of new features at one time, and for Xero, it is easier to manage an incremental deployment.
My last question – will Xero continue to deliver? Following is a list of enhancements we can expect to see this year:
  • A tidy up of the somewhat confusing GST tax codes.
  • Basic Inventory  (maybe late this year or early next).
  • Purchase Orders.
  • Quotes.
  • Electronic lodgment of tax file numbers.
  • New reporting engine enabling more flexible report customization.
  • Improved bank reconciliation interface.
A reasonable list in my estimation.
So I am confessing to a personal Xero conversion, but no – I won’t be recommending it to all clients. It is an ideal solution for some, but not all, business models. I will continue to keep a range of solutions in my tool box.
Posted on 6:49 AM | Categories:

Intuit's Profit Drops 40% as U.S. Tax Season Delayed


Steven D. Jones & Mia Lamar for the Wall St. Journal write: Intuit Inc.'s  fiscal second-quarter profit dipped 40% as the delay in the beginning of the U.S. tax season reduced revenue for its core tax-preparation business.  A two-week delay in the beginning of the tax-filing season was costly for the Mountain View, Calif., company. If not for the delay, Chief Executive Brad Smith said revenue in the quarter would have climbed 10% instead of falling 3%. In a typical year, the Internal Revenue Service begins accepting returns by mid-January. This year the IRS didn't begin accepting any returns until Jan. 30, just two days before the end of Intuit's second fiscal quarter.
The company said Thursday that sales of its TurboTax federal tax software were down 7% through Feb. 16 compared with the prior year, though sales of its online software have picked up through February.  Intuit is "performing well across our businesses and benefiting from the tailwind of the shift to online and mobile services," Mr. Smith told analysts on the earnings call.   Despite the late start to the tax season, the competition for business from an expected 140 million filers is unfolding as expected.
"It's a dog-eat-dog competitive environment as it has always been, but we continue to sharpen our game plan and feel good about where we are now," he said.   Intuit, the maker of TurboTax do-it-yourself tax software and QuickBooks small-business accounting software, has expanded beyond desktop software into delivering online services. It now offers 50 apps for tasks from tax preparation for households to small-business payroll processing, which is attracting customers.
The number of filers who have downloaded and filed taxes with Intuit SnapTax for smartphones is three times larger than last year, said Mr. Smith. Changes this year allow filers to begin preparation of a return on a smartphone, save it online and complete the filing on a PC, which is further increasing the appeal of SnapTax, he said.
"I think you will see mobile become an important part of the mix" of services customers use to file taxes, said Mr. Smith.
The company expects the shift online will trim sales of QuickBooks for desktop computing to decline 5% in unit sales and about 1% in revenue. That will be offset by mid-single digit percentage growth of online subscribers and a 10% increase in revenue.
A year ago the company purchased Demandforce for $423 million and its tools to automate marketing and customer communications for small businesses. Mr. Smith said Demandforce subscriptions were up 57% over the year and the company was in the "early days of our ability to cross sell" its services to QuickBooks customers.
Intuit has been reshaping its business, spinning off some low-margin business services to focus on higher-margin online services such as managing customer relations.
For the quarter ended Jan. 31, Intuit reported a profit of $71 million, or 23 cents a share, down from a year-earlier profit of $118 million, or 39 cents a share.
Revenue fell 3.1%, to $968 million. Intuit this month cut its revenue view to $960 million to $965 million, citing the delayed tax season. It estimated Thursday that revenue growth would have been 10% without the delays.
Shares closed Thursday at $61.30 and were last up eight cents after hours at $61.38. The stock is up 3.1% so far this year.
Posted on 6:42 AM | Categories: