A report released Monday by the Government Accountability Office said that the confusing taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code, specifically how it pertains to education credits, ends up costing many college students. While Title IV was designed to give substantial government-backed incentives for higher education, the law’s complexity creates nightmares for many college students and parents looking for the best tax plan each year. As the report suggests:
Among the limited number of tax returns available for our analysis, 27 percent of eligible tax filers did not claim either the tuition deduction or a tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. . In so doing, these tax filers failed to reduce their tax liability by $169, on average, and 10 percent of these filers could have reduced their tax liability by over $500. One explanation for these taxpayers’ choices may be the complexity of postsecondary tax provisions, which experts have commonly identified as difficult for tax filers to use.
Check out the IRS page showing how complicated education can be be when filing a tax return. There are sections devoted to the Hope Education Credit, Lifetime Earning Credit, Qualified Tuition Program, Early Distributions from IRA, Coverdell Education Savings Account, Tuition and Fees Deduction, Student Loan Cancellation and Repayment Assistant, Student Loan Interest Deduction, and Reductions for Scholarships, Grants, and Fellowships, Education Savings Bond Program, Employer-Provided Educational Assistance, and Business Deduction for Work-Related Education. You may need Forms 1098-E, 1098-T, 1099-Q, 1099-4, 2106, 2106-EZ, 5329, 8815, 8863, and/or W-9S. On the bright side, it’s a great time to be an accountant.
Instead of an IRS public awareness campaign on how to best maneuver through the current complex tax code that frustrates millions every year, why not overhaul the tax code and make it fair and simple for everyone? This way, everyone could do their own taxes, and the benefits received from government educational assistance would not vary depending upon who had the money to hire their own accountant.Share