 Income tax 2022-2023, American Opportunity Credit. Can you claim the credit? Let's do some wealth preservation with some tax preparation. Most of this information comes from Publication 970, Tax Benefits for Education Taxure 2022. You can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're down here at the bottom where the credits are located. Remember, in the first half of the income tax formula is an essence in income statement, although a strange one, the bottom of it being taxable income as opposed to net income and a normal income statement. We calculate the tax on the taxable income, not with one rate, but with the progressive tax system to get to the tax before credits and other taxes. Then we get to the credits and other taxes like self-employment tax, for example, and the payments, finally, which would include estimated tax payments, as well as withholdings to get to the bottom line, tax refund or tax due. Credits are similar to deductions in that we like them both, but if we can get a dollar credit versus a dollar deduction, we typically want the dollar credit because we get the full dollar of benefit as opposed to a dollar deduction simply decreasing the taxable income and our benefit being reflected or shaped by. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. The tax rate. Also remember that the credits are categorized in two major categories, non-refundable and refundable. Non-refundable credits don't take the tax liability below zero. Refundable credits do, meaning they're using the tax code more like a welfare or benefit program for that refundable portion than for taxes. Okay. Can you claim the credit for the American Opportunity Credit? The following rules will help you determine if you are eligible to claim the American Opportunity Credit on your tax return. That's what we want to know. Who can claim the credit? Generally, I want the credit. I want the credit. I get the credit. Generally, you can claim the American Opportunity Credit if all three of the following requirements are met. You pay qualified education expenses of higher education. You're typically thinking like college, something like that. You pay the education expenses for an eligible student. So the student's got to be eligible. The eligible student is either yourself, so you can be paying for your own, your spouse, someone that's going to be reported on the same tax return because you're married, filing a joint, or dependent. Once again, someone that's being reported on your tax return, in this case as a dependent. Is there social security number or identification number on your tax return is the general idea. So you can claim your tax return. So note, qualified education expenses paid by a dependent you claim on your tax return or by a third party that dependent are considered paid by you. So you don't really have to do any kind of fancy money finagling these kind of situations. If you have an uncle that wants to pay for like a kid going to college, the uncle doesn't necessarily have to give the money to like the parent or to the kid so that then they then are the ones that are paying for, you know, so it would have to be a gift and then a, you know, because you would think that if the uncle paid for it that somebody should get the benefit of the expenses. The uncle can't do it because they're not claiming the kid as a dependent. In that case, in the scenario we are imagining, so you would think someone would be able to get the benefit. If the kid paid for the education expenses, but they're claimed as a dependent, then you would think they can't claim it. You would think that the parent would still be able to claim it because they are dependent in that case. And therefore you would think they would get it. All right, student qualifications. Generally, you can claim the American opportunity credit for a student only if all the following four requirements are met. What are they? Number one, as of the beginning of 2022, the student had not completed the first four years of post-secondary education, generally the freshmen through senior years of college. So we're thinking usually when we think of college, we kind of break it down into like the four-year segments. Although of course it could take people much longer or shorter in reality to get through the four-year segment timeframe, but you're usually thinking that's the four years of college, the general four-year categorization. Okay, so generally the freshmen through senior years of college as determined by the educational institution. So if you have questions about that and it's a little bit less normal of a structure or something, then you got to talk to the educational institution and you can get some information there. For this purpose, don't include academic credit awarded solely because the student's performance on proficiency examinations. So proficiency examinations may qualify the student to bypass or something part of the credits, which can make things a little bit confusing in those cases. All right, two, the American opportunity credit has not been claimed by you or anyone else, you'll see below for this student for any four tax years before 2022 because if you did, then you're done because you only get the four tax years generally. If the American opportunity credit has been claimed for this student for any three or fewer tax years before 2022, this requirement is met number three for at least one academic period beginning or treated as beginning in 2022, the student, both A, was enrolled in a program that leads to a degree certificate or other recognized educational credential. So again, usually that's fairly straightforward, but you can imagine kind of unusual situations where it may not be as straightforward, so we want to make sure that that is met in those more possibly unusual kind of educational situations. B, I carried at least one half the normal full-time workload of his or her course of study. So now you get into the technical question of, well, what does it mean to be carrying one half the normal full-time workload, which also is a question that often can be answered talking to the educational institution, which often you would imagine gets questions around these areas. So the standard for what is half a normal full workload is determined by each eligible educational institution. However, the standard may not be lower than any of those established by the U.S. Department of Education under the Higher Education Act of 1965 for 2022, treat an academic period beginning in the first three months of 2023 as if it began in 2022 if qualified education expenses for the student were paid in 2022 for that academic period. So we have that cutoff situation. We typically account on a cash-based system when we're thinking about deductions and payments and whatnot, and that means that if you paid for something in 2022, you should get the deduction or related expenses related to it or credits related to it. You would think in 2022, even though the thing didn't happen until 2023, although there could be limitations on that the virus is going to be skeptical that you take advantage of this kind of prepayment situation. Okay, number four, as of the end of 2022, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. So they kind of threw that one in there, possibly because at one time they were having a problem with those controlled substances on the oncologist. We think might be the reasons for that. But in any case, example one, Sharon was eligible for the American Opportunity Credit for 2016, 17, 19, and 21. Sharon's parents claimed the American Opportunity Credit for Sharon on their 2016, 17, and 19 tax returns. Sharon claimed the American Opportunity Credit on her 2021 tax return. So in other words, you would think she was a dependent for the first three years and then she claimed it herself on her own tax returns. That's four years total that it was completely, it was claimed somewhere per Social Security Number, Sharon's, whether that Social Security Number be on her parents' returns or on her returns. So the American Opportunity Credit has been claimed for Sharon for four tax years before 2022. Therefore, the American Opportunity Credit can't be claimed for Sharon for 2022. If Sharon were to file form 8863 for 2022, the box on part three, line 23, should be checked, yes, and only the lifetime learning credit would be able to be claimed. So she couldn't get the better credit because she did the four years already of claiming it and therefore possibly still can get a lifetime learning credit in that case. Example two, Wilbert was eligible for the American Opportunity Credit for 2018, 19, 20, and 22. Wilbert's parents claimed the American Opportunity Credit for Wilbert on their tax returns for 2018, 19, and 20. No one claimed an American Opportunity Credit for Wilbert for any other tax year, so only three years thus far, the American Opportunity Credit has been claimed for Wilbert for only three tax years before 2022. Therefore, Wilbert meets the second requirement to be eligible for the American Opportunity Credit. If Wilbert were to file form 8863 for 2022, the box on part three, line 23, should be checked, no, if Wilbert meets all the other requirements, he is eligible for the American Opportunity Credit. Let's do another one. Example number three, these are great. Glinda enrolls on a full-time basis in a degree program for the 2023 spring semester, which begins in January 2023. So we're talking tax year 2022, but it doesn't happen until 2023. Glinda pays the tuition for the 2023 spring semester in December 2022, and we're usually on a cash-based system, so you paid for it, but you didn't actually get the education or you're not gonna until 2023, even though you paid for it in 2022 with the tax year being 2022. Because the tuition Glinda paid in 2022 relates to an academic period that begins in the first three months of 2023, the eligibility to claim an American Opportunity Credit in 2022 is determined as if the 2023 spring semester began in 2022. So under normal conditions, you would think that would be the case. Under normal conditions, in other words, you would think you would be on a cash-based type of system, possibly being able to take the credit for the payments made in the year they were made, not when the service was provided. However, if you try to take advantage of that system, which would be usually in more unusual circumstance by trying to prepay more upfront, then that's why they put this three-month limitation thing in there. Therefore, Glinda satisfies this third requirement. Tip, if the requirements above aren't met for any student, you can't claim the American Opportunity Credit for that student. You may be able to claim the Lifetime Learning Credit. So if you can't get the better one, American Opportunity Credit, you might be able to get the worse one, but it's better than nothing, the Lifetime Learning Credit for part or all of that student's qualified education expenses instead. Who can't claim the credit then? Who can't do it? You can't claim the American Opportunity Credit for 2022 if any of the following apply. So your filing status is married filing separately. They don't want that because they think you're going to take advantage of it possibly by trying to lower your AGI, Adjusting Gross Income, below the threshold so you can take it or something like that. So that's common if you're married and you're looking for some credits for these credits, then usually it's better to file married filing joint than married filing separate. You are claimed as a dependent on another person's tax return, such as your parent's return. So if you're claimed as a dependent, you can't claim the credit yourself because the assumption is that your parent is supporting you, that's one of the conditions to be a dependent, so you would think that your parent possibly could claim the credit, but not the student. So see who can claim a dependent's expense later. You're modified Adjusting Gross Income, you're MAGI, you're Adjusting Gross Income which might be modified by a factor which could be related to foreign income or something like that, but typically your Adjusting Gross Income that's a phase out is $90,000 or more, $180,000 or more if filing jointly, MAGI Adjusting Gross Income modified is explained later under effect of the amount of your income on the amount of your credit. Okay, you or your spouse were a non-resident alien for any part of 2022 and the non-resident alien didn't elect to be treated as a resident alien for tax purposes. More information on non-resident aliens can be found in Publication 519 if you want to dive into that in more detail. You weren't issued an SSN Social Security Number or ITEN by the due date of your 2022 return including extensions. You can't claim the American Opportunity Credit on either your original or amended 2022 return. Also, you can't claim this credit on your original or amended 2022 return for a student who wasn't issued an SSN Social Security Number an ATEN adoption number or an ITEN by the due date of your return including extensions if an ATEN or ITEN is applied for on or before the due date of a 2022 return including extensions and the IRS issues an ATEN or ITEN as a result of the application the IRS will consider the ATEN or ITEN as issued on or before the due date of the return. Alright, here's our flu chart question and answer can you take the credit American Opportunity only not talking lifetime learning here so you can claim the American Opportunity Credit for 2022 so did you pay qualified education expenses in 2022 for an eligible student normally you will get the form from the financial institution indicating at least tuition was paid if yes we continue on if no we go down here you can't claim the American Opportunity Credit next item did the academic period for which you paid qualified education expenses begin in 2022 or the first three months of 2023 so you paid for it in 2022 we're on a cash based system so that's usually when you're possibly able to get it or even if you didn't start until three months you know this classes didn't start until like three months of 2023 within three months if yes we continue if no no is the eligible student you your spouse have married filing jointly or you're dependent you claim on your tax return so are they you your joint spouse or dependent someone with a social security number on your return if yes we continue if no no are you listed as a dependent on another person's tax return so in this case we would think no because if we were a dependent on someone else's tax return then we would think the someone else possibly could get the deduction not us because because in essence they're supporting us financially you would think so in this case so in this case no continue if yes you can't take the deduction but possibly the other person who's claiming you can next is your filing status married filing separately so you can't have that the IRS is skeptical of married filing separately so if your marriage you gotta file married filing joint is the general idea so if no it's not filing separately we continue for any part of 2022 were you or your spouse a non resident alien who didn't elect to be treated as a resident alien for tax purposes so we gotta say no on that one and to continue if so then is your modified adjusted gross income your MAGI this is the income phase out $90,000 $180,000 if married filing jointly if it grows income less than that it's gotta be less than that if it's over that then then you're gonna lose the credit capacity because you make too much money if it's less than that we continue did you use the same expenses to claim a deduction or credit so you can't like double dip on the credit so if you if you used the the the same expenses to get a deduction somewhere or you use them for another kind of credit you can't like take the same expenses and apply it to another credit that would be double dipping on the expenses and so we're gonna say no we're the same expenses paid entirely with a tax free scholarship grant or employer provided education assistance so that would kind of be similar to the double dipping if it were because if you got tax free money for free to pay for the expenses it's not really an expense because you got free money to pay for the expense with the scholarship or grant or if the employer provided the benefit and you didn't include it in income because that was the point of them providing the money so it's not included in box one of the W-2 form then you would think you can't get an expense because you're not paying in taxes on the income you already got a benefit for it in that case and then so we'll say no did you or someone else receive a refund of all the expenses did you or someone else receive a refund of all the expenses so in other words I guess you paid for the expenses there and then they refunded the expenses in which case you didn't really pay for the expenses because they were refunded so we're going to say no then you claim the American Opportunity Credit for 2022 there's some qualifications down here but that's the general questionnaire you can have in your mind you can picture that nice questionnaire in your mind when asking these questions and then you want to overlap that with the lifetime learning credit questionnaire which if you can't take this one you might be able to default to that one which we'll talk about in future presentations