201601.06 Posted by Wealth Management
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Major life events can change your tax filing status and may qualify you for benefits that you were not eligible for in previous years. It is important to understand how life events can affect your taxes. Here are some tips on the tax benefits for higher education and tax changes due to a divorce.

College

If you, your spouse, or a dependent attended college in 2015, then some of the costs may save you money on your federal tax return.

  • American Opportunity Tax Credit. The AOTC is worth up to $2,500 per year for an eligible student, but only for the first four years of higher education. 40% of the AOTC is refundable, so up to $1,000 of the credit is refundable, even if you do not owe any taxes.
  • Lifetime Learning Credit. The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
  • One credit per student. You can claim only one type of education credit, per student, per year on your tax return. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student.
  • Qualified expenses. Only qualified expenses, including tuition, fees and other related expenses can be used to figure the credit for an eligible student.
  • Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities, but vocational schools or other post-secondary schools may also qualify.
  • Form 1098-T. In most cases, you should receive Form 1098-T from your school by February 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

Divorce

If you went through a divorce this year, here are things you may want to think about when you are getting ready to file your taxes.

  • Filing Status. If you were divorced by midnight on December 31st, you will file separately from your former spouse. If you are the custodial parent of your child you could file using the head of household status; otherwise, you should file as single, even if you were married for part of the year.
  • Know Tax Consequences of Support. Child support is not deductible to the person who pays it, but alimony is deductible. The recipient of alimony must claim it as income on their tax return; however, child support is not reported as income. If your support is considered “family support,” it is treated like alimony.
  • Claiming of children. If the divorce agreement does not specify who claims the children, then the custodial parent claims them, unless Form 8332 is signed.
  • Claim the child care credit. Only the custodial parent can claim the child care credit.

Contributed by Andrea McClure. Andrea joined Chemung Canal Trust Company in 2014 as Manager of Tax Services in our Wealth Management Group.


For additional guidance, please contact Marci Cartwright at 607-737-3754 or mcartwright@chemungcanal.com.

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