MAY 2011 – Foreign bank account and Education tax

1.  CONSEQUENCES OF FAILURE TO PARTICIPATE THE 2011 OVDP (CONT’D)

Taxpayers who do not disclose offshore income or assets and do not participate the OVDP will be charged for higher penalties if get examined by IRS, including foreign information return penalties, the fraud penalty and accuracy related penalties on underpayment. In addition, such taxpayers will be in a risk of possible criminal investigation and related charges.

IRS Commissioner Doug Shulman made it clear that the IRS intends to continue its investigation of U.S. taxpayers with hidden offshore cash or assets. 

Furthermore, with the enactment of the Foreign Account Tax Compliance Act enhanced the reporting responsibilities of foreign banks and financial institutions, and the expanded Foreign Financial Asset Reporting provisions increase U.S. taxpayers’ own reporting requirements, the task of finding and prosecuting those who are hiding offshore funds and assets is only becoming easier for the IRS.   

2. TAX BENEFITS FOR EDUCATION

IRS offers a variety of tax benefits such as tax credits, deductions, and saving plans to help taxpayers for the expense of higher education.

American Opportunity Credit                                                                     

The tax credit is one of the tax benefits which can directly reduce the tax that you need to pay. The new credit is modified based on Hope credit for tax years of 2009 and 2010. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above $160,000. The income limit is actually higher than the existing Hope and lifetime learning credits.

The base amount to calculate the credit includes not only the tuition fee paid but also course materials as qualifying expenses. American Opportunity credit allows taxpayers to claim four post-secondary education years instead of two. The maximum annual credit of per student is $2,500.

Lifetime Learning Credit

The lifetime learning credit may be particularly helpful for those taxpayers who are not qualify to take American Opportunity credit, especially for graduate students and those students who are part-time or are not pursuing a degree.

You may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the Hope and American opportunity credit and lifetime learning credits for the same student in one year.

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