Flowchart Comparing Lifetime Learning Credit toTuition and Fees Deduction
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The federal tax code contains several tax credits for college education.Determining which is best is not always easy.This flowchart should simplify your decision between LLC and TDF
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Flowchart Comparing Lifetime Learning Credit toTuition and Fees Deduction
- 1. LLC vsTDF Flow Chart Expanded Explanations
- 2. Are your Qualified Expenses more than $5,000? Use LLC Prepare your taxes through form 1040 line 43 without using the Tuition and Fees Deduction Is your taxable income on line 43 greater than: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH Use LLC No Does the amount on line 43 minus: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH = more than your qualified expenses? UseTuition and Fees Deduction Is your MAGI over •$64,000 •$128,000 MFJ? UseTuition and Fees Deduction Yes Yes Yes No Yes No Come see me! No The whole enchilada, but the next few slides break down the steps and give an explanation for each one.
- 3. Is your MAGI over •$64,000 •$128,000 MFJ? UseTuition and Fees Deduction Yes No If you are filing single or head of household the LLC starts to phase out at $54,000 and is completely gone by $64,000. If you are filing MFJ the LLC starts to phase out at $118,000 and is completely gone by $128,000. TheTuition and Fees Deduction is available t0 $80,000 (single, HoH) and $160,000 (MFJ).
- 4. Are your Qualified Expenses more than $5,000? Use LLC Is your MAGI over •$64,000 •$128,000 MFJ? UseTuition and Fees Deduction Yes Yes No No The maximumTuition and Fees Deduction is $1,000.This is based on the maximum amount of allowable QHEE expenses ($4,000) being taxed at the highest possible marginal rate (25%)* The LLC allows QHEE expenses up to $10,000 and gives a credit at 20%. Therefore, if QHEE expenses are greater than $5,000 then the 20% LLC credit rate will always exceed the maximum value you can get from Tuition and Fees Deduction. *if you are paying a higher marginal rate, you won’t qualify forTuition and Fees Deduction.
- 5. Are your Qualified Expenses more than $5,000? Use LLC Prepare your taxes through form 1040 line 43 without using the Tuition and Fees Deduction Is your taxable income on line 43 greater than: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH Use LLC No Is your MAGI over •$64,000 •$128,000 MFJ? UseTuition and Fees Deduction Yes Yes No Yes No If your taxable income is not above these levels, your income is only being taxed at 15%.This makes LLC’s 20% tax credit rate more valuable than the Tuition and Fees Deduction.
- 6. Are your Qualified Expenses more than $5,000? Use LLC Prepare your taxes through form 1040 line 43 without using the Tuition and Fees Deduction Is your taxable income on line 43 greater than: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH Use LLC No Does the amount on line 43 minus: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH = more than your qualified expenses? UseTuition and Fees Deduction Is your MAGI over •$64,000 •$128,000 MFJ? UseTuition and Fees Deduction Yes Yes Yes No Yes No No This checks to see if all of your allowable QHEE expenses will be deducted from the 25% marginal rate.
- 7. Does the amount on line 43 minus: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH = more than your qualified expenses? This checks to see if all of your allowable QHEE expenses will be deducted from the 25% marginal rate. Form 1040 Line 43Taxable Income $37,450 if single $74,900 if MFJ $50,200 if HoH- IsThis Number GreaterThanYour QHEE for the Year?A little clearer visual explanation of the math this box asks for
- 8. Are your Qualified Expenses more than $5,000? Use LLC Prepare your taxes through form 1040 line 43 without using the Tuition and Fees Deduction Is your taxable income on line 43 greater than: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH Use LLC No Does the amount on line 43 minus: •$37,450 if single •$74,900 if MFJ •$50,200 if HoH = more than your qualified expenses? UseTuition and Fees Deduction Is your MAGI over •$64,000 •$128,000 MFJ? UseTuition and Fees Deduction Yes Yes Yes No Yes No Come see me! No If only part of your QHEE expenses are deductible at 25% and part at 15%, we need to do some fancier math than I want to try to show on a slide!