Great idea, credits and deductions for that huge tuition bill your paying for your kid or for yourself. It is a little confusing what with the Hope Credit becoming the American Opportunity Credit, the Lifetime Learning Credit and the Tuition and Fees Deduction. Which can you take and which can get you the most benefit (ie money). Many other questions abound with these education tax benefits and a trained professional can help you. But on top of these confusing rules, would you believe the educational institution that you are paying all that money to is taking form intended to give you the basic information you need and not bothering to fill it out accurately?
The 1098T, Tuition Statement. Now the concept of what you are able to claim for education expenses, generally speaking, are allowable tuition and fees at an eligible institution minus scholarships, grants and refunded tuition (for classes withdrawn). Not hard for the institution endeavoring to teach you physics and quantum mechanics, right?
Let’s look at the form, which can be found in pdf form at this link:
http://www.irs.gov/pub/irs-pdf/f1098t_11.pdf
OK, box 1 is “Payments received for qualified tuition and related expenses”. Almost none of the colleges choose to use this box, for that would make it too easy. Even those that do are surprising likely to not get it right. Well, if they put an accurate figure in this box, you should be able to simply subtract Box 5 “Scholarships and Grants” (which is the only figure that usually proves accurate) from Box 1 and use that to figure your credits and deductions.
But no, they must, for some reason, use Box 2, “Amounts billed for qualified tuition and related expenses”. This means nothing, literally. Just because you were billed does not mean you paid it. What is completely inexcuseable is when institutions regularly under report this figure. One student at a local private college gave me a 1098T reflected $873 in Box 2 and $4,500 in Box 5 for scholarships. Logging onto her account, we verified that the scholarships were accurate and yet was billed for and paid nearly $15,000 in tuition, including with the scholarships. She had well more than what was needed to claim the full American Opportunity Credit. Wow, 15 grand and you don’t even get an accurate receipt!
One poor gentleman had three kids and a wife going to college. Enough expenses to cause anyone to consider jumping off a bridge. Instead, for some strange reason this gentleman decided instead to do his own taxes using Turbo Tax. Using the “easy question and answer” method, he filled out his forms and got his refund. Great! Except one summer day, he got a letter from the IRS demanding he repay about $11,000. The IRS claimed that there was no proof that the amounts shown in Box 2 had ever been paid.
At that point he decided to come see me. After using “enhanced interrogation techniques” we got everybody’s username and passwords to log on to all of the college accounts involved and after almost 15 pages of account summary pages, we determined that the 1098T’s were more dangerous than good. After thoroughly documenting what he was able to claim, I found that in believing the 1098T’s my client had claimed about $1,700 too much. Much better than $11k but had the forms been accurate my client would never have had to suffer that problem. After a few weeks of angst, the IRS accepted my figures. We were not talking only one institution screwing up the forms, all five of the colleges messed them up (one went to summer classes at another school).
Lessons learned: I know I sound like I am trashing the competition but I recommend using a professional to deal with the credits. Of course, for any professional, garbage in garbage out. We need the forms and information to do a return properly. I suggest you bring in the 1098Ts so that the trained professional can shred them (OK, review them and put them in the file). Also, and most importantly, bring the username, password and website of each college institution. I would describe to you what to look for in the accounts, but the pitfalls in reading these things are many. After you leave your tax professional’s office, you will likely discover your 1098T was inaccurate. You might want to call the financial aid office or drop a note in the envelope with your next check to let them know what you think of the 1098T Trap.
Showing posts with label tax returns. Show all posts
Showing posts with label tax returns. Show all posts
Thursday, March 29, 2012
Saturday, January 15, 2011
Where did the rapid refunds go, long time passing…
Where did the rapid refunds go, long time passing…
H&R Block Press Release dated December 24, 2010:
H&R Block says HSBC Terminates RAL Funding Pact. As a result of a regulatory directive by the Office of the Comptroller of the Currency (“OCC”), HSBC has given notice to H&R Block that it is immediately terminating the parties’ long-term contract under which HSBC provided all of H&R Block’s refund anticipation loans (“RALs”) and some of its refund anticipation checks (“RACs”). As a result, HSBC will no longer provide RALs or RACs to H&R Block clients.
Yes, rapid refunds are becoming a thing of the past. The Christmas Eve massacre cut off one of the big three at the last moment. But this is simply the latest blow in a year long campaign by the Obama administration through various agencies and a host of state attorneys general.
The biggest single blow came this off-season when the IRS announced it would not be providing the debt code indicator with its acknowledgements. The debt wachacallit, what is that? In the past, rapid refunds are actually bank loans that a tax customer paying a tax preparer would receive within 24 hours of filing a return. The loan would then be repaid when the IRS direct deposits the refund to the bank in 8 to 15 days. The tax preparer would do the return, get it signed by the taxpayer, then send it electronically to the IRS with a code sent to the bank. The IRS would then do an initial electronic evaluation of the return and send an acknowledgement that the return was accepted. Part of this acknowledgement was the debt code indicator. What this told the bank was whether a claim (ie, child support, student loans, unpaid taxes, etc) was filed against the tax refund of the taxpayer. This was obviously important information to the bank since it told the bank if this taxpayer was actually getting their refund. If not, 95% of the taxpayers applying for these loans can’t pay it back out of their own income.
The stated reason for this is that many of the providers in the industry would charge outrageous rates with APRs (annualized percentage rate) of 100-300%. I took severe issue with a local paper that printed this as gospel when “covering” the IRS funded “free clinics”. They really did a softball on them, accepted everything they said about the “bad, predator” professional tax return preparer. For my own business, I used Chase Bank. Chase capped its loans to an APR of 33%. Not bad considering a short loan period balloons the APR and many credit cards are in the 20-25% range. Also, since they were on Chase Bank checks, my clients could cash the checks for free instead of paying the real loan sharks, the payday advance places.
Ironically, I never made a lot off of the Rapid Refunds. Yes, truth be told my “take” was usually about 15-20 bucks. Considering my average return fee is about $100, not really a big deal. I only offered them because a threshold question is, “Do you offer Rapid Refunds?” A no answer and you get hung up on. But like it or not, they are a thing of the past. I will move on to other clients and survive. Darn, and I was just looking at that one house up in the Akron area built by that basketball player who moved to South Beach, what’s his name?
Another article regarding another Rapid Refund or Refund Anticipation Loan provider:
http://banktalk.org/2011/02/16/river-city-bank-drops-ral-program/
H&R Block Press Release dated December 24, 2010:
H&R Block says HSBC Terminates RAL Funding Pact. As a result of a regulatory directive by the Office of the Comptroller of the Currency (“OCC”), HSBC has given notice to H&R Block that it is immediately terminating the parties’ long-term contract under which HSBC provided all of H&R Block’s refund anticipation loans (“RALs”) and some of its refund anticipation checks (“RACs”). As a result, HSBC will no longer provide RALs or RACs to H&R Block clients.
Yes, rapid refunds are becoming a thing of the past. The Christmas Eve massacre cut off one of the big three at the last moment. But this is simply the latest blow in a year long campaign by the Obama administration through various agencies and a host of state attorneys general.
The biggest single blow came this off-season when the IRS announced it would not be providing the debt code indicator with its acknowledgements. The debt wachacallit, what is that? In the past, rapid refunds are actually bank loans that a tax customer paying a tax preparer would receive within 24 hours of filing a return. The loan would then be repaid when the IRS direct deposits the refund to the bank in 8 to 15 days. The tax preparer would do the return, get it signed by the taxpayer, then send it electronically to the IRS with a code sent to the bank. The IRS would then do an initial electronic evaluation of the return and send an acknowledgement that the return was accepted. Part of this acknowledgement was the debt code indicator. What this told the bank was whether a claim (ie, child support, student loans, unpaid taxes, etc) was filed against the tax refund of the taxpayer. This was obviously important information to the bank since it told the bank if this taxpayer was actually getting their refund. If not, 95% of the taxpayers applying for these loans can’t pay it back out of their own income.
The stated reason for this is that many of the providers in the industry would charge outrageous rates with APRs (annualized percentage rate) of 100-300%. I took severe issue with a local paper that printed this as gospel when “covering” the IRS funded “free clinics”. They really did a softball on them, accepted everything they said about the “bad, predator” professional tax return preparer. For my own business, I used Chase Bank. Chase capped its loans to an APR of 33%. Not bad considering a short loan period balloons the APR and many credit cards are in the 20-25% range. Also, since they were on Chase Bank checks, my clients could cash the checks for free instead of paying the real loan sharks, the payday advance places.
Ironically, I never made a lot off of the Rapid Refunds. Yes, truth be told my “take” was usually about 15-20 bucks. Considering my average return fee is about $100, not really a big deal. I only offered them because a threshold question is, “Do you offer Rapid Refunds?” A no answer and you get hung up on. But like it or not, they are a thing of the past. I will move on to other clients and survive. Darn, and I was just looking at that one house up in the Akron area built by that basketball player who moved to South Beach, what’s his name?
Another article regarding another Rapid Refund or Refund Anticipation Loan provider:
http://banktalk.org/2011/02/16/river-city-bank-drops-ral-program/
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