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Are educational deductions contributing to tax controversies?

With another academic year in full swing, readers may have questions about the tax implications of college expenses. The Internal Revenue Service offers some guidance in IRS Publication 970. However, taxpayers who itemize their deductions rather than claiming the standard deduction may appreciate the clarity that a tax attorney can bring to the table. 

For example, tax laws frequently change. A taxpayer who took a deduction in 2014 for qualified tuition and fee expenses will not be able to do so in 2015. Even unchanged features, such as the lifetime learning credit or student loan interest deduction, can be difficult to correctly claim.

Additional complications may arise for taxpayers who dipped into their retirement savings in order to defray the cost of college tuition. In the case of an early distribution from an IRA account, defined as a withdrawal before the age of 59 and ½ years, there is a 10 percent additional tax. 

We live in a do-it-yourself society. Many taxpayers may prefer to prepare their own taxes or take a false sense of security from online preparation programs, such as TurboTax. Yet even those programs are not infallible, especially if a user enters incorrect information or misunderstands the online instructions. Is it any wonder that tax mistakes may arise? 

Unfortunately, ignorance of tax laws is generally not a defense to tax penalties and late fees, at least from the IRS’s perspective. Yet when a tax mistake was not intentional, a taxpayer may have an opportunity to administratively negotiate with the IRS. As an attorney who is also a CPA, I have the background to understand the IRS’s negotiation parameters, as well as when a taxpayer has a strong case for reaching a favorable settlement. My motto is that every tax problem has a solution. Visit my website to learn more.

Source: Accounting Today, “A Back-to-School Tax Break Refresher,” Michael Sonnenblick, Sept. 22, 2015

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