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Archive | April, 2012

Taxes – When To Claim College Students As Dependents

Taxes – When To Claim College Students As Dependents

You’ve finished this year’s taxes and filed your FAFSA for aid. Looking at your tax return, the question may pop up – what happens when I can’t claim my new college student? How long can I avoid that anyway? Would they be better being ‘independent’? All good questions to make sure that one is both taking the best advantage of the rules and planning for life changes.

Independent students
Taking the questions in reverse, classifying your student as independent‘ is difficult. In general, the classification is designed for those students that really have no other means of support. Right or wrong, the general terms to be independent are students over 24 or having some external determination, such as wards of the court or married students. I’ll assume that most parents don’t want to take these measures (although we may have all considered the ward of the court option at some point in the teenage years!)

Rules to claim your student as a dependent
General rules to claim a dependent start with whether you are providing at least one-half of their support. That is the first step for exemptions, but there are lots of rules and exceptions (even some people that you are supporting may not qualify!).

Specific rules for students:

  1. Are they a student? They should be a student for at least 5 months of the year in question (the tax year).
  2. They have to be a qualified relative. Children includes adopted, foster, step children or other descendents (grandchildren). Brothers and sisters can count as well.
  3. Students can be claimed as children up to age 24. Those over 24 can still qualify if they have less than $3,700 of gross income and you meet all other tests.
  4. They must have lived with you more than half the year – living at college can count as living with you
  5. They must be classified as ‘single’ on their tax return.

Only one person may claim an exemption for anyone, including students. Divorce usually ends up with dependency being decided in the decree. If not, make sure both parents are in agreement on which is claiming the exemption – only one can. The other issue that trips people up is how the student files. Because only one person can claim the student. They should check the box indicating that “someone else can claim you” as an exemption and complete the worksheet. Most students will still end up with either zero taxable income or something much lower than the savings to the parent.

Planning for them to (truly) leave
I always encourage people to think ahead. When your son or daughter no longer meets the rules above, you’ll be losing an exemption. It is important to think about this at the start of the year and not be caught with an unexpected bill at year end. Remember that exemptions are based on the status at the end of the year, so if your student is 25 on December 31 or otherwise doesn’t meet the criteria above on that date, then they are not eligible to be a dependent for the whole year.

The easiest way to adjust for this is by changing the withholding exemptions on the Form W-4. Subtracting one from this number will likely deal with the tax implications. If you are in a situation that involves something more complex or just want to know how much the impact will be, take the current exemption ($3,800 for 2012) times your marginal tax rate. That is the rate at the highest tax bracket you are in. Your tax software usually gives you this on a summary page or you can refer to the federal tax tables.

It also never hurts to check the options. It may be that the exemption could work either way. Maybe your student just finished school and started a job. They still meet the criteria above (24 or under at 12/31, lived with you more than half of the year and a student for five months) but now they have a job and want the most tax savings. In these days of tax software it is possible to calculate both returns with and without the exemption and see which combination works best.

The example would be that the parent may save $1,140 by claiming the exemption where the impact to the child’s return is only $570 (30% tax bracket vs. a 15% bracket). That is a total savings of almost $600! I’ll leave it up to you how to settle it.

Source(s):  Dependents and Exemptions

Today’s guest article is provided by Philip Laube, a CPA in Ohio and the Assistant Vice President for Business & Finance at Muskingum University. He presents and writes about personal finance issues for college students. He can be followed at twitter and on his web site

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Obama’s New Student Loan Initiative #DontDoubleMyRate (video)

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Guidance Counselors – Free Paying For College Tool Kit

Guidance Counselors – Free Paying For College Tool Kit

The purpose of CheapScholar.org is to provide families and their students with the financial tools, resources, and knowledge that will assist in their pursuit of a college education.

Guidance/College counselors at the high school level often serve as the “front-line” for fielding questions related to college expenses.  At CheapScholar.org, we hope to provide a support tool for not only you but also the families and students in which you serve.

In an effort to better help you and your families, CheapScholar.org has put together this Paying For College Toolkit as a way in which you can provide quick reference information to those visiting your office (in person or online).

Implementing CheapScholar.org as a resource for your families is as easy as 1-2-3.

1. Below you will find a number of pdf handouts (sized for easy printing) referencing some of the more hot topic issues related to the financial aspect of the college experience. Feel free to print these off and use them as a quick reference resource in your office to provide to students and families as questions arise.

2. Provide a link to CheapScholar.org on your High School Guidance Counselor Webpage. This will insure that your students have access to the most current information related to their paying for college experience. In addition, they can ask questions at anytime to receive prompt helpful advice. The following links are the most popular:

CheapScholar’s College Resource Center: http://cheapscholar.org/about/college-resource-center/

CheapScholar’s Scholarship Resource Site: http://cheapscholar.org/find-scholarships/

CheapScholar’s College Comparison Tool: http://cheapscholar.org/about/compare-colleges/

3. As you implement CheapScholar’s Paying For College Toolkit as a resource for your school, you may encounter additional questions or topics that are not covered by the handouts below. We encourage you to send us those topics/questions so that we can incorporate them in future releases of the toolkit. If you would like to receive future updates to the toolkit, please send us your contact information and we will be glad to add you to our notification list.

Click here if you would like to see how one high school incorporates the toolkit into their guidance counselor website.

We hope that you find this Paying For College Toolkit helpful. If you know anyone else in your profession that may find benefit from this information, please be sure to share this resource with them. We are always glad to help.

CheapScholar’s Guide To:


Filing Your FAFSA

Need-Based vs. Merit-Based Financial Aid

Finding Outside Scholarships

Federal Loan Programs

Landing The Perfect Work Study Job

Having A Car On Campus

Paying Tuition In Three Easy Steps

Saving On Textbooks

Getting Your Degree In Three Years

Paying For College When You Have Bad Credit

Student Financial Literacy

Choosing Private Education Loans

Paying Back Student Loans

 

GuidanceCounselorToolkit

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Good News! – Short Reprieve For Data Retrieval Tool Requirement

Good News! – Short Reprieve For Data Retrieval Tool Requirement

Over the course of the past few weeks, CheapScholar.org has been covering the implementation of the new IRS Data Retrieval Tool that has been incorporated into the FAFSA filing process. The concept of making the information gathering process easier is a noble one but there has certainly been some challenges along the way.

Here are some of the informative DRT articles graciously provided by Mr. Randy Green, Financial Aid Director at Wittenberg University:

Digging up “DRT” on the New FAFSA IRS Linking Tool

Unearthing More “DRT” on IRS FAFSA Data Retrieval Tool

Based upon the amount of traffic we have seen and the number of comments and emails that have been received, the IRS Data Retrieval Tool has certainly been a hot topic for families and students.

In an effort to keep our readers up-to-speed with information related to the DRT, I wanted to share with you the most recent announcement provided by the Department of Education. It appears that a temporary reprieve from the DRT requirement is being provided through July 15th.

Below are some excerpts from the announcement letter. However, you can click here to see the entire document. Hope this helps!

As the April tax deadline approaches, we are aware that some students and families may not be able to immediately use the FAFSA-IRS Data Retrieval Tool or to obtain IRS Tax Return Transcripts needed to complete the verification process primarily because of the large volume of tax returns coming in at this time of year.

In the limited set of cases where an aid applicant, who has filed a tax return and attempted unsuccessfully to use the IRS Data Retrieval Tool or to obtain IRS Tax Return transcripts, needs a timely alternative for meeting the 2012-2013 verification requirements, institutions may, until July 15, 2012, use a signed copy of the relevant (i.e., applicant, spouse, or parent) 2011 IRS Tax Return (Form 1040, 1040A, or 1040EZ, as appropriate) as acceptable verification documentation for the 2012-2013 award year.

After July 15, 2012, institutions must comply with the acceptable documentation requirements included in the July 13, 2011 Federal Register notice and in DCL GEN-11-13.

The Department will require some institutions to obtain verification documentation in compliance with the current acceptable documentation requirements for a sample of the institution’s students whose information was verified using a paper copy of a tax return.

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Unearthing More “DRT” on IRS FAFSA Data Retrieval Tool

Unearthing More “DRT” on IRS FAFSA Data Retrieval Tool

Today’s guest article is provided by Mr. Randy Green, Director of Financial Aid at Wittenberg University.

Last week, I received this email from the mother of one of our college sophomores.

“This has been a very frustrating time with the new policy on obtaining IRS transcripts for financial institutions.  I have been calling for the past month to obtain this document for financial aid and as of today this document is still unavailable.

This creates such a discomfort in award distribution, not only for the institution, but the recipients.  My son, [name removed], felt very uneasy, as well as we as parents, about this as he is a presidential scholarship recipient.  He is working so hard at the university and finds this discouraging.

According to the IRS this document may not be available until late April early May 2012.  We had to pay taxes again this year and although the check was cashed by the IRS about 4 weeks ago the document is not available until the time indicated.  Please somehow assure students of their scholarships because this is discouraging.”

To be clear: tax filers who received a refund are having their returns processed first; tax filers who had to pay on their taxes had their checks cashed, but have returns that will not be processed until late April or May – a delay of twelve weeks or more.

I responded to the mother that the delay caused by the IRS Data Retrieval Process would not affect her son’s financial aid package here, but that the package would not be final until the verification process is completed; it appears likely that this will happen in May at the earliest.

We perform a quick review of every ISIR (the school side of the FAFSA results) we receive, but when I received her email I pulled her son’s record and looked it over closely.  There is nothing obviously wrong with the data (the taxes paid are in a “normal” range, the wages earned are close to the Adjusted Gross Income, and so on), but the most reassurance I could give them is that everything appeared to be in order.  The final aid package must wait for a completed verification.

March and April can be anxious, frustrating times for families even if everything goes smoothly.  Requiring that families use the Data Retrieval Tool or IRS tax transcripts to complete verification adds to that frustration.  The fact that they will not be available – due to IRS policy decisions on processing tax returns – until May takes that frustration to a whole new level.

The powers-that-be should note two items that may make this issue explode in the next four weeks:

1) In mid-April the Department of Education is going to send out a reminder to families that they should use the DRT process,  i.e. to people who have already tried to use it and were told they cannot use it until May;

2) May 1 is the national deposit deadline for most colleges – some families are going to be asked to commit before their financial aid packages are final.

We have always had those families who miss deadlines, who don’t file taxes properly, who don’t respond to instructions on verification.  And there have been those who have situations that require a delay due to tax filing extensions.

The difference this year is that families who do everything right – those who file their FAFSA and tax returns on time and accurately, who respond quickly to requests for information – are barred from getting their financial aid in a timely fashion solely because of federal policies.

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Student Financial Services Social Media Presentation 2012

Student Financial Services Social Media Presentation 2012

To My Faithful Readers – please disregard this interruption to your regular CheapScholar.org programming. 😉

Over the course of the next few weeks, I am providing presentations to various groups throughout the midwest region. These sessions will be highlighting how Social Media can be incorporated into Student Financial Service activities on a college campus. I will be covering the basics of Twitter, Facebook, and Blogging (CheapScholar.org).

To The Conference/Webinar Attendees – In an effort to “go green” and limit the number of handouts, below is some additional information for you to reference and utilize as you move forward in your individual social media projects on your campus. If you encounter any questions along the way, don’t hesitate to drop me a line.  Enjoy!

Ways In Which You Can Utilize Social Media On Your Campus

FACEBOOK STATS AND FACTS

  • More than 850 million active users
  • 48% of 18-34 year olds check Facebook right when they wake up (28% before getting out of bed – Smart Phones)
  • In 20 Minutes on Facebook:
    • 1,000,000 links are shared
    • 1,484,000 event invites are sent
    • 2,716,000 photos are uploaded
    • 1,972,000 friend requests are accepted
    • 1,587,000 statuses are updated
    • 10,200,000 comments are posted
  • Average user has about 130 friends
  • Average user spends 31 minutes on Facebook each day
  • Guide to setting up a Facebook Fan Page (jpg)
  • Start your own Facebook Page here!

TWITTER STATS AND FACTS

  • Over 200 million accounts (100 million are active)
  • 55% of active users are mobile users
  • 460,000 new Twitter accounts opened each day
  • 350 million tweets are sent each day
  • 36% of Twitter users tweet at least once per day
  • Top Twitter Accounts (ranked by followers)
    • Lady Gaga – 21,951,838
    • Justin Bieber – 19,252,306
    • Katy Perry – 16,935,911
    • Rihanna – 15,967,423
    • Shakira – 15,196,983
    • Britney Spears – 14,916,256
    • Kim Kardashian – 14,273,251
    • Barack Obama – 13,569,004
    • Taylor Swift – 12,232,856
    • Selena Gomez – 11,194,355
  • Guide to setting up a Twitter Account (pdf)
  • Connecting Twitter to Facebook (Facebook updates automatically post on Twitter)

BLOGGING STATS AND FACTS

  • There are over 164 million blogs on the internet
  • 56% of internet users read blogs
  • 80% of blogs are abandoned within the first month
  • 68% of bloggers have been blogging for over 2 yrs
  • 33% of bloggers are female
  • 27% of bloggers update their blog daily
  • 64% of bloggers are hobbyists
  • Some popular blogging platforms include: WordPress & Blogger

Some Cool (and FREE) Tools That Can Help You Manage Your Social Media

  • Social Oomph helps to automate the messages sent to your followers
  • HootSuite provides a one stop shop for managing all your social media venues
  • Social Mention allows you to track what others are saying about you
  • TwitterFeed automatically pushes your RSS feed to all your social media channels
  • RSS Graffiti is one of the best RSS feed auto-posters to Facebook

Here is a cool video that displays the impact of social media on the world:

Related Posts with Thumbnails

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