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College Families Overpaid The IRS – Again

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Those families who made their best guess as to which of the Education Tax Incentives would save them the most on their taxes have put their 2005 tax returns to bed. However, for many, a sigh of relief is a bit premature. Countless families, even many assisted by professional tax preparers, chose incorrectly and have significantly overpaid the IRS -AGAIN. The good news is that they are guaranteed a tax refund!

Mark Twain once said, "No man's life, liberty, or property are safe while the legislature is in session," and never have truer words been spoken.

On June 6, 2001, President Bush signed HR 2014 into law. This created The Tuition and Fees Deduction, based on Senator Charles E. Schumer's (D-NY) Make College Affordable Act. However, the president signed a watered down version and consequently, it doesn't work for the families who need it the most.

Senator Schumer had been tirelessly championing legislation that would allow college families, including independent students, to deduct a major portion of their college expenses on their tax returns. The Senator's Make College Affordable Act would have given millions of American families the opportunity to deduct up to $12,000 per year to help reduce the rising costs of tuition and related expenses. Unfortunately, and to the detriment of untold numbers of taxpayers, the Tuition and Fees Deduction allowed a mere deduction of $3,000 for tax years 2002-2003, $4,000 for tax years 2004-2005, and in 2006 it sunset.

The drastic slashing by Congress of Senator Schumer's bill and President Bush's failure to send it back to them is the case in point substantiating that our government doesn't give a hoot in hell about the financial struggle the average parent endures in their endless pursuit of the American dream for their children.

Effective legislation to make college expenses tax deductible was long overdue and began with the Tax Payer Relief Act of 1997, which Senator Schumer supported and voted for. The Act created two education tax credits, the HOPE Scholarship Credit (maximum $1,500 a year for 2 years), and the Lifetime Learning Credit (maximum $1,000 increasing to $2,000 in 2003).

Note: A tax deduction lowers taxable income, and the savings depends on the filer's tax bracket. A tax credit directly lowers taxes by the amount of the credit, dollar for dollar, regardless of the filer's tax bracket.

Although it was a step in the right direction, The Act fell far too short in providing major tax relief for college families, especially in view of soaring tuition costs and other related expenses that families endure year after year. Nonetheless, the real tragedy is when the Tuition and Fees Deduction is taken by taxpayers who qualify for The HOPE Scholarship Credit or The Lifetime Learning Credit, and overpay their taxes by hundreds of dollars each year! However, if they file an amended tax return, they are guaranteed a refund from the IRS!

Affluent single and head of household taxpayers whose adjusted gross incomes (AGI) exceed $51,000, and joint filers whose AGI exceeds $102,000, will not qualify for the HOPE Scholarship or Lifetime Learning Credit, and are therefore, the only ones who actually benefit from taking the Tuition and Fees Deduction. Thus, camouflaged as tax relief for all of America's college families, what Congress actually did was Robin-Hoodwink lower and middle income families by taking from them and giving to the rich!
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This is one in a series of articles by college admissions and financial aid expert, Reecy Aresty. For almost three decades, he has helped thousands of families send their students to the college of their choice for less than they ever dreamed possible! His revealing book, a virtual admissions and financial aid manual, "Getting Into College And Paying For It," reveals what our colleges and universities don't want their applicants to know! It's also the only book of its kind available in Spanish. Filled with trade secrets and insider information, it is guaranteed to give students the all-important edge in admissions, and parents countless legal ways to reduce the cost.
Contact him at http://www.paylessforcollege.com or reecy@paylessforcollege.com or 561.672.7374
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Reecy Aresty has been a financial advisor since 1977. He has authored the critically acclaimed, "How To Pay For College Without Going Broke," an invaluable, parent/student admissions/financial aid manual. Arguably the most revealing book ever (more...)
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