Question

Tax Breaks for Education

In 2018, Margery and Philip Brown have three children attending college full-time and they claim all three as dependents. Philip also has education related expenses for himself. They paid for the following expenses:

1. Their daughter, Amy, is a Masters student in both Spring 2018 and Fall 2018 at Wake Forest where she received a scholarship for part of her tuition. Her parents paid a total of tuition of $10,000 and room & board of $6,000 (all paid in 2018). Amy purchased her own textbooks at a cost of $1,000.

2. Their son, Brad, is a freshman in Spring 2018 and a sophomore in Fall 2018 at Western Carolina. His parents paid a total of tuition and fees of $6,400 and room & board of $5,800 (all paid in 2018).

3. Their daughter, Elizabeth, started at UNC-CH as a freshman in Fall 2018. She receives a scholarship that covers her tuition but her parents paid required fees of $1,000. Her parents also paid room & board of $4,600 and textbooks for $1,400.

4. Philip is a self-employed lawyer. He completed continuing education courses that are required to meet the requirements of North Carolina State law and cost $3,000. (You can ignore any effects on self-employment tax.)

6. Philip is also paying off student loans from law school. He paid $3,200 of interest in 2018.

Other information related to their tax return:
AGI before the effects of education related deductions	130,000
state income tax payments	6,900
real estate taxes	3,500
home mortgage interest	9,600
charitable contributions	5,400

The following outlines the application of the tax formula to Assignment 6:

AGI before education deductions

Subtract: for AGI education related deductions

Professional education for a self-employed individual

Student loan interest deduction

AGI

Subtract: Itemized Deductions

Taxes, interest, and charitable

Taxable Income

Tax – calculate tax on taxable income using the tax rate schedule (write an Excel formula to do the calculation)

Subtract: Credits

American Opportunity Credit (AOC)

Lifetime Learning Credit (LL)

Be certain to consider any phase outs

Tax after Credits

Answer 1

AGI before education deductions $130000

Subtract: for AGI education related deductions $ 33200

Professional education for a self-employed individual $ 3000

Student loan interest deduction $3200

AGI $ 90600

Subtract: Itemized Deductions

Taxes, interest, and charitable $ 25400

Taxable Income $ 65200

Tax calculation

Taxable income	Tax on this income
0 - $9525	10 % of 9525= $952.50
$9526 - $38700	952.50 + 12% *29174= $ 4453.50
$38,701 - $65200	$4453.50 + 22% * 26499 = $ 10283.28
EXCEL FORMULA :  952.50 + 0.12 * (38700 - 9526) + 022 * (65200-38701) = $ 10283.28 Subtract: Credits

American Opportunity Credit (AOC) (2500 *2 )= $ 5000 ( For Brad & Elizabeth)

Lifetime Learning Credit (LL) 20% * 10000=$ 2000 ( For Amy & PHILIP)

Tax after Credits $ 3283.28

NOT E: (a) AOC & LL CANNOT BE CLAIMED FOR SAME STUDENT

(b) AOC & LL CANNOT BE PHASED OUT AS TOTAL INCOME (MAGI) IS LESS THAN $114,000 to $134,000.