Top Ten facts about the Tuition and Fees Deduction 

The Tuition and Fees deduction of up to $4,000 is available to help parents and students pay for post-secondary education. Below are ten important facts about this deduction every student and parent should know.

1. You do not have to itemize to take the Tuition and Fees deduction. You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A.
2. You may be able to claim qualified tuition and fees expenses as either an adjustment to income, a Hope or Lifetime Learning credit, or – if applicable – as a business expense.
3. You cannot take the tuition and fees deduction on your income tax return if your filing status is married filing separately.
4. You cannot take the deduction if you are claimed, or can be claimed, as a dependent on someone else's return.
5. The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status.
6. You cannot claim the tuition and fees deduction if you or anyone else claims the Hope or Lifetime Learning credit for the same student in the same year.
7. If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot be deducted twice.
8. You cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance.
9. The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan.
10. IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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IRS may curb loans against tax refund

The agency suspects that some tax preparers may inflate refunds to increase the size of the loans they make, and thus their fees.

By Kathy M. Kristof, Los Angeles Times Staff Writer
January 4, 2008 The Internal Revenue Service said Thursday that it was considering curbing tax refund loans offered by tax preparers such as H&R Block Inc. and Jackson Hewitt Tax Service Inc.

More than 12 million people take out such loans each year to in effect get advances against their refunds, according to a study by consumer groups, which have long criticized the fees on the loans as excessive.

The IRS suspects that some preparers may be inflating refunds to increase the size of the loans they make.

"A preparer who inappropriately inflates the amount of a refund is able, directly or indirectly . . . to collect a higher fee," the IRS said in a notice seeking public comment about the potential refund-loan regulations, which would not go into effect until next year.

The news slammed the stocks of the two big tax preparers. Jackson Hewitt plunged $7.26, or 23%, to $24.13, a two-year low. H&R Block slumped 86 cents, or 4.6%, to $17.75.

Kansas City, Mo.-based H&R Block said its tax preparers were compensated without regard to the amount of refund loans made and therefore had no incentive other than to serve the interests of clients.

Executives at Parsippany, N.J.-based Jackson Hewitt did not return calls seeking comment.

Refund loans generated $192.4 million in revenue for H&R Block last year, up from $177.9 million the year before, a spokesman said.

A taxpayer typically signs up for a refund loan when having his or her taxes done and receives the money two days later. One or two weeks after that, when the expected refund comes in, the loan is paid off.

The loans "provide refund money in 48 hours instead of eight to 15 days," H&R Block spokesman Dan Smith said. "People can't always wait eight to 15 days to get their money."

But consumer advocates say the loans not only are usurious but also are marketed to the most vulnerable of taxpayers: low-income parents claiming a special tax break for the working poor.

H&R Block, which reduced its fees on refund loans last year under an agreement with consumer groups, currently charges an interest rate of 39% a year on its refund loans. But because the loans are so short-term, the cost averages about 2% of the loan amount, or less than the typical fee on a credit-card advance, the company said.

For example, the fee on a $3,000 refund loan from Block averages $62, Smith said.

Jean Ann Fox, director of financial services for Consumer Federation of America, called the IRS' action a step in the right direction. But she said the agency should have formally proposed a rule Thursday rather than just say it was thinking about it.

"This is an expensive, unnecessary product," she said. "The folks who are having trouble making ends meet don't need to share their refund with the bank and a tax preparer."

The move being considered by the IRS would bar tax preparation firms from sharing taxpayer return information with lenders, even with the consumer's consent.

That would be a detriment to taxpayers who want the loans, H&R Block's Smith said.

Without refund loans, he said, "taxpayers may still need funds quickly but may be forced to use higher-cost lenders -- assuming they even have access to credit -- since they will not have the ability to secure their loan with a tax refund."

The IRS proposal now undergoes a public comment period, which lasts until early April. After that, the rule can be revised and then formalized. It then would need to go through another comment period. That makes it unlikely that any rule would go into effect until sometime next year, if at all.

"We are not making a definitive statement here," said David Williams, director of electronic tax administration for the IRS.

"We are trying to determine whether there is a problem, and if there is a problem, whether this would be a way to solve it."

ED's Worksheet items to ask for OR QUICK INFORMATION:

W-2

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1099 (Self employed earned income, interest on Stocks, savings, etc)

1098 (Mortgage interest paid) 

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Deductions for IRA (not ROTH IRA)

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2007 Tax Season - Items of Importance