Making Landmark College Affordable

Making Landmark More Affordable

Dino KoffRuss North

Wilder Business Services802-295-9093

[email protected]

Prepared by North Business Services, P.C., d/b/a Wilder Business Service

mailto:[email protected]

http://www.wilder-business.com/

This is Affordable

Fees for the 2010-2011 Academic Year

Tuition $ 47,500Room Fee $ 4,400Board Fee $ 4,100Health Insurance $ 400 ($650 for international students)

Technology Fee $ 100Total $ 56,500


How do you pay for this?• Institutional Grants• Outside Scholarships

– High School– Foundations/Agencies

• Federal/State Grants• Federal Loans

– Available to Parents and Students• Allows time for investments to increase

• Tax Credits• Medical Expense Deductions• Savings/Gifts


Education Tax Credit

• The American Opportunity Tax Credit can be used for four years, can fund up to $2,500 of college costs (100% of the first $2,000 plus 25% of the next $2,000 per child, for a total of $2,500), and up to 40% is refundable.

• Credit phase-out - Individuals with incomes of up to $90,000 and married couples with incomes of up to $180,000 can qualify for credit for each student.

• Extended through 2012Prepared by North Business Services, P.C., d/b/a Wilder Business Service

IRS publications 502 and 907

• 502-Medical and Dental Expenses• 907-Tax Highlights for Persons with

Disabilities


What does this mean?

• Landmark College's tuition and fees may qualify as a medical tax deduction. IRS publications 907 and 502 offer information about medical expenses. In addition to tuition and fees, other costs such as books, notebook computers, travel and other educational related expenses may be tax deductible. We recommend that you consult your tax advisor about these options.


Definition of “Medical Care”

Medical Care includes amounts paid (A) for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body (including amounts paid for accident or health insurance) (and) (B) for transportation primarily for and essential to medical care. Section 213(e)(1) of the IRS codePrepared by North Business Services, P.C., d/b/a Wilder Business Service

Publication 502 - page 13

You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. A doctor must recommend that the child attend the school. Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided.


Publication 502 - page 13, cont.

You cannot include in medical expenses the cost of sending a problem child to a school where the course of study and the disciplinary methods have a beneficial effect on the child’s attitude if the availability of medical care in the school is not the principal reason for sending the student there.

Publication 907 – page 7Costs for a school that furnishes special education if a principal reason for using the school is its resources for relieving a mental or physical disability.


Do You Need?


Court Rulings and Resources

• Urbauer vs. Commissioner (TCM 1992-170)- Deductions for tuition, room, board and required fees allowed as medical deductions at college preparatory school.

• E.F. Glaze vs. Commissioner (TCM 1961-244) - Establishes criteria for deducting costs as medical expenses:– Is principal purpose of expenditure for “medical”

reasons,– Were expenditures made on advice of a physician,– Do the expenditures directly relate to the treatment,

and– Could the treatment reasonably be expected to be

effective.• Lawrence D. Greisdorf (54 TC 1684)

– Medical deduction allowed since principal purpose for attendance was school’s therapeutic value and wasn’t its incidental educational benefits.



• Private Letter Ruling 8401024– School servicing students with Dyslexia ruled to qualify

as a “Special School” under the definition of I.R.S Regulation 1.213-1(e)(1)(V)(a) thus qualifying expenses as medical deductions.

• Private Letter Ruling 8447014– Curriculum of a special school may include some

ordinary education, but this must be incidental to the primary purpose of the school to enable the student to compensate for or overcome a handicap, in order to prepare that student for future normal education and living. If school qualifies as special school tuition and other expenses, including expenses of transportation to and from the school to the extent such transportation is primarily for and essential to the Medicare care, are deductible.



• Revenue Ruling 78-340– Tuition under Dr. recommended program designed to

return student to traditional program within a few years deductible as medical expenses.

• Private Letter Ruling 200521003– Helping the student overcome a physical or mental

handicap and move on to normal education and living is the essence of special education. Normal education is not medical care because it is not designed to help someone overcome a medical disability. Thus, a physician or other qualified professional must diagnose a medical condition requiring special education to correct the condition for that education to be medical care.



• Private Letter Ruling 200521003, cont.– The school need not employ physicians to provide that

special education, but must have professional staff competent to design and supervise a curriculum providing medical care. Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided. Special education thus includes teaching Braille to a visually-impaired person, teaching lip reading to a hearing-impaired person, giving remedial language training to correct a condition caused by a birth defect, or overcoming other disabilities. Section 1.213-1(e)(1)(v)(a); Rev. Rul. 70-285, 1970-1 C.B. 52. Dyslexia can be sufficiently severe as to be such a handicap. Rev. Rul. 69-607, 1969-2 C.B. 40.


What does paying mean?


7.5% Adjusted Gross Income

• One can deduct only the amount of your medical and dental expenses, as an itemized deduction, that are more than 7.5% of your adjusted gross income shown on Form 1040, line 38.

• If you are subject to the Alternative Minimum Tax (AMT), expenses in excess of 10% of your adjusted gross income are deductible in the determination of your Alternative Minimum Tax.


Start Planning Now!

• 7.5% limitation is met: Document all your medical costs to maximize the benefit and further reduce the after-tax costs of the Landmark Medical Deduction.


2010 Tax Information

• Qualifying Child & Qualifying Relative– Can only claim medical or education deductions/credits

for individuals for whom you can claim an exemption subject to certain exceptions for medical deductions.

• Personal Exemptions– Each personal exemption is worth $3,650

• Mileage Rates 2011– Medical and Moving .19 per mile– Business .51 per mile


Case Study 1Joe and Jane Average, Son Jimmy Average• Adjusted Gross Income (AGI) of $70,000• Standard deduction $12,400 insufficient

deductions to itemize• Exemptions $10,950• Tax $ 5,700• Marginal Tax Rate 15%

Effective Tax Rate 11.9%• Claiming Landmark expenses as medical

deductions:– $ 2,500 American Opportunity Tax Credit– $42,500 Medical deduction ((56,500-10,000)-4000))– Tax refund after credit and medical deduction: $1,164 tax

reduction of $6,796– After-tax cost of Landmark $39,704 resulting in 14.6%

reduction in cost

Scholarship:

$10,000


Case Study 2Mr & Mrs Strapped For Cash• One Child “Consumer of Cash”• Adjusted Gross Income $121,225• Itemized deductions $27,350• Exemptions $10,950• Tax $15,639• Tax rates, marginal 25%, effective 18.8%• Claiming Landmark expenses as medical

deductions:– $ 2,500 American Opportunity Tax Credit– $52,500 Medical deduction (56,500-4,000)– Tax liability after credit and medical deduction - 4,140

reduction of $11,499– After tax cost of Landmark $45,001 resulting in 21.4%

reduction in cost


Case Study 3Mr and Ms. Taxpayer• One child “Jane Taxpayer”• Adjusted Gross Income $250,000• Itemized deductions $42,000• Exemptions $10,950• Tax $53,900• Marginal tax rate 28%

Effective tax rate 27.3%• Claiming Landmark expenses as medical

Deduction:– Medical Deduction 56,500– Tax after medical deduction $43,063 savings of $10,837– After-tax cost of Landmark College of 45,663.Prepared by North Business Services, P.C., d/b/a Wilder Business Service

Gifts & 529 Contribution• Annual giving of $13,000 per individual with no gift

tax or required filing• Direct payments of tuition or medical expenses do

not count towards the $13,000 limit.• Contribute up to $130,000 per couple upfront for a

five year gift – no gift tax, filing return to make election.

• Grandparents, friends, relatives, parents, brothers, sister all qualify to make gifts.

• Vermont allows a 10% tax credit up to $500 for contributions to the Vermont Higher Education Investment Plan (VHEIP). Other states have deductions or credits for their plans.

• Distributions for all expenses necessary for the person’s enrollment qualify for tax free treatment.


Protecting Your Deduction

• Consider adding statement to return detailing medical deduction claimed and principal purpose for attendance at Landmark for its therapeutic values.

• If selected for audit, provide detail of deduction and various reference materials to your representative or IRS agent if you are handling your own case.

• Key stress that therapeutic treatment was primary reason for selecting Landmark and education received was incidental to the treatment.


Other Methods of Funding CollegeFor victims of the credit crisis

• Withdrawal from Health Savings Account-If tax-free if expenses qualify for medical deduction, no medical deduction allowed for amounts withdrawn from HSA account.

• Withdrawal from ROTH IRA account, amounts contributed/converted come out first, no taxes due. Earnings after 59 1/2 and five years of account being open are tax free. Can still claim Medical deduction or Education credits if otherwise eligible.

• Withdrawal from IRA account, taxable, but withdrawals for education expenses and medical expenses in excess of 7.5% of AGI not subject to 10% early withdrawal penalty. Expenses still qualify for medical/education deduction or credit if qualification criteria are met. Income will increase AGI which may affect deductions and credits.

• Withdrawal from Qualified Plan, if allowable, if structured as a loan, nontaxable if repaid, if not repaid taxable. If structured as a taxable withdrawal, funds used for medical expenses in excess of 7.5% of AGI not subject to the 10% penalty, education do not qualify for exception from the penalty. Unpaid loans upon separation from service are taxable.


Other Tax StrategiesBusiness Owners

– Hire child to work in business, earnings up to $5,450 tax free, compensation must be reasonable in light of services provided.

– Establish Section 127 plan. Write off up to $5,250 of tuition, plan must not discriminate.

– Establish Section 105 Medical Reimbursement plan. Plan must be in writing, must not discriminate and compensation including plan benefits must be reasonable in light of services provided.

– High income, do not claim exemption for student, thus allowing student to claim education credits, still can claim medical deduction.


Coordination of Strategies


Homework

•Begin Preparing Now

•Speak with your tax professional/financial advisor

•Start thinking of how to coordinate strategies

•We are here to help!


Thank You

• Dino Koff• Russ North

Wilder Business ServicesPhone: 802-295-9093
