Take Control Over S Corp Losses

The tax law provides tax breaks to parents who pay for their children to attend school.  For instance, you may qualify for two higher education credits.

Strategy:  Compare the credits.  You can potentially claim either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), but not both.

Let’s take a closer look at the two credits for 2018.

  1.   The AOTC, which has expired and been reinstated numerous times, was finally made permanent by the Protecting Americans from Tax Hikes (PATH) Act.  You can claim the AOTC for qualified expenses like tuition and course materials, but not room and board.  Notably, the maximum annual credit is $2,500 per eligible student, but you can claim the AOTC for every eligible student in the family.  For example, if you have two children attending college, the maximum allowable credit is $5,000.  Also, the credit is now available for the first four years of undergraduate study, having recently been raised from two years of study.  However, the AOTC is phased out for many parents.  The phase-out takes place between $80,000 and $90,000 of modified adjusted gross income (MAGI) for single filers and $160,000 and $180,000 of MAGI for joint filers.  If you exceed the upper limit, you get no credit.
  2. The LLC was already a permanent part of the tax code before the PATH Act.  But the maximum credit is only $2,000 as opposed to $2,500 for the AOTC.  In addition, unlike the AOTC, only one LLC can be claimed on the return.  Thus, if you have two children in school this year, the maximum credit is only $2,000.  On the plus side, the LLC is available for all years of study, not just four years.  The qualified expenses are the same as they are for the AOTC.  There is another negative note.  The LLC is phased out at even a lower income levels than the AOTC. phase-out range for 2018 is between $57, 000 to $67,000 of MAGI for single filers and $114,000 to $134,000 for joint filers.  Again, no credit is available above the upper thresholds.   You can only choose one credit on your 2018 return for the same child.  For instance, if you opt for the AOTC, you’re shut out of the LLC.   As we’ve explained above the AOTC is preferable, when allowed.

Small Business Tax Strategies

March 2019