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Going to college actually pays

The IRS provides taxpayers with education credits that help the cost of higher education by lower tax owed on a return. There are two education credits available: American Opportunity Tax Credit and Lifetime Learning Credit.
There are 3 requirements to deduct education payments to an institution on your tax return. First, you or a dependent must have qualified education expenses for higher education that includes tuition and even books costs. An eligible student must be enrolled in an eligible educational institution, and of course, the eligible student must be yourself, your spouse, or a dependent listed on your tax return for that year.
To figure out which credit you may qualify is actually a lot simpler than most people know. The America Opportunity Tax Credit is more common then the other as it is closely associated with the initial first 4 years for a bachelor’s degree. You must meet the following requirements:

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period* beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

Of course the amount of credit will vary based on the AGI (Adjusted Gross Income) of your return.
The Lifetime Learning Credit is targeted towards students taking higher education courses that meet the following criteria and credit amounts will also vary based on income:

  • Be enrolled or taking courses at an eligible educational institution
  • Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills
  • Be enrolled for at least one academic period* beginning in the tax year

Regardless of which credits one is eligible for, these are great credits that many tax preparers forget to include and therefore many taxpayers lose out on these great additions to tax returns. A really great handy chart that includes a breakdown of both credits can be found here at the IRS website: http://www.eitc.irs.gov/Other-Refundable-Credits/educompchart

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UBER, LYFT and the IRS

Both UBER and Lyft consider their drivers as independent subcontractors, not to be confused with W-2 based employees. But when it comes to reporting the income provided by them, the drivers are considered neither.

The IRS rule for Independent Contractors are that anyone receiving a cash/check based income directly from an employer that is above $600, needs to receive a 1099-Misc for that tax year. Traditional employers submit, to the IRS and the employees, a W-2 form for the income paid out and tax that was paid to the IRS throughout the year.

But people that work for UBER, Lyft, TaskRabbit, etc receive neither of those forms. If they get anything from them, it would be a 1099-K, a very new and sort of complicated addition to the 1099 tax form “family”, which is used mainly to report credit and debit card transactions through a merchant services.

Many drivers that had been employees for most of their lives and are now their own “bosses” and are making their own hours have no idea what kind of information they need to keep or how to even handle this 1099-K form. They have never filed a Schedule-C on their return, or ever paid self-employment tax, so this 1099-K form just adds to the confusion.

It’s also not clear as to why UBER sends out the form to everyone regardless of the amount (min. threshold is 200 transactions per month or exceed $20K) and Lyft doesn’t send one out until it reaches those minimums.

Either way, from a legal and ethical standpoint, the taxpayer needs to file ALL of their earned income throughout the year regardless of how the companies that paid them files.