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Slick TV ads often make financial planning and wealth management sound simple, but it’s usually not. Managing wealth requires knowing a lot about highly technical topics, like taxes, government regulations, and finance as well as history, psychology and how to communicate with loved ones about sensitive issues. This article highlights some of the knowledge needed to manage wealth and why it’s often so daunting without the help of an independent personal financial advisor who is familiar with your situation.
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A Sign Of Progress In Solving U.S. Economic Problems
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The Great Fake Out Of 2023 Is Poised To Extend Into 2024
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Test Your Financial Planning IQ
The five questions below are a challenge meant to allow you to assess your knowledge of investing, tax and financial planning. If you have been following our news stream, this quiz draws on familiar ground. The answers are below.
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Planning Briefs
Education Tax Credits Primer
Published Thursday, October 10, 2019 at: 7:00 AM EDT
The American Opportunity Credit (for college students) and the Lifetime Learning Credit — for undergrad, graduate and vocational students — are the two education tax credits available from the federal government. Students can claim either of the two credits for schooling costs, or their parents can — provided they don't opt for married filing separately.
Even if you paid education costs with a student loan, you are eligible to take these credits. You can claim both benefits on the same return but not for the same student or the same expenses.
The benefits aren't huge, but a tax credit reduces your tax bill dollar for dollar, making it much more valuable than a mere deduction. Some key details about the two credits:
American Opportunity Tax Credit (AOTC)
Worth up to $2,500, you can take the AOTC credit if you paid at least that much in undergrad education expenses in 2019: tuition, fees, books and equipment. Expenses not included in the qualifying formula: transportation, living and medical expenses.
With a credit, should you owe $4,000 in taxes, then you need to pay just $1,500 to Uncle Sam.
What's more, this benefit is better for college students than the lifetime credit because it is refundable. Meaning, if the amount of the AOTC exceeds the tax you owe, then up to 40% of the credit (to a maximum of $1,000) will be refunded to you.
You can claim the credit for up to four years. Parents take the credit if they ponied up for a student's education costs and the student is listed on their tax return as a dependent.
It does have income limits: To get the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less, and $160,000 if you're married filing jointly. You get a reduced benefit if the MAGI is up to $90,000, or $180,000. Above those top levels, you get zilch.
MAGI is the total of your household's adjusted gross income — income minus deductions — with any tax-exempt interest income added back.
Lifetime Learning Credit (LLC)
This one is worth a little less, $2,000, and there's no ceiling on the number of years you can take the LLC. That's why it makes great sense for a grad student, who faces years of course work. Ditto for someone who goes back to school to develop new aptitudes, even if the person took the AOTC in previous years.
Like the AOTC, the LLC also doesn't cover living expenses, medical care or transit, but does allow you to claim supplies and books that the school requires.
The MAGI ceilings are a little lower than with the AOTC. Namely, $57,000 for singles and $114,000 for marrieds for the full benefit, and $67,000 and $134,000 for the reduced credit. Another downside: The LLC doesn't have a refundable feature.
The real cost of education has risen for decades, and these two federal tax credits are a single instrument in a strategy to pay for private school or college costs. For information about other tax breaks and advice on strategically planning to finance education, call our office, as financial and tax planning are highly dependent on your personal situation.
This article was written by a veteran financial journalist. While these are sources we believe to be reliable, the information is not intended to be used as financial or tax advice without consulting a professional about your personal situation. Tax laws are subject to change. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. No one can predict the future of the stock market or any investment, and past performance is never a guarantee of your future results.
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