Tax Planning For Your Student Loan Interest Deduction

JC Leahy

Between parents and students, there is a danger of letting the student loan interest deduction slip through your fingers.  Here's the problem.  You must meet all of the following basic conditions to claim the deduction:

• You must be obligated the pay the interest and
• You must pay the interest and
• The loan must have been for your college education or that of someone who was your dependent at the time the debt was incurred.

You have to meet all 3 criteria.  This presents all kinds of horrible possibilities.  For example, you have a dependent college student who takes out Sallie Mae loans and you make the required loan payments.  You can't take the deduction if  because the STUDENT is obligated to pay, NOT YOU.  That's a disappointment.  What's worse is that the student can't claim the deduction either, because he didn't pay -- you did.   Therefore, neither you nor your student meet all 3 of the above criteria.

Another scenario: Suppose you took out a Plus loan for you child's eduction, but he wasn't your dependent at the time.  You are definitely obligated to pay the student loan with interest, and you indeed pay.  However, since the student wasn't you dependent at the time you took the loan out,  neither you nor the student meet all 3 of the above criteria and neither can claim the deduction.

So be careful planning your student loan interest tax deduction !!

Here's a link for further reading.

Tax Planning for your Business Startup Expenses

JC Leahy

If your business began in 2012, you can elect to deduct up to $5,000 of start-up costs paid or incurred after October 24, 2004, and before and after 2010, and up to $10,000 of start-up costs paid or incurred in 2010. The $5,000 limit is reduced (but not below zero) by the amount by which your total start-up costs exceed $50,000 and the $10,000 limit is reduced (but not below zero) by the amount by which your start-up costs exceed $60,000. Start-up costs which are not deductible are amortizable over a 15 year period.

Deducting Mortgage Insurance Premiums

JC Leahy

In January, 2013, the American Taxpayer Relief Act extended the provision regarding Mortgage Insurance Premium deductibility for the 2012 tax reporting year.  If there is an amount in Box 4 of the Form 1098 your receive from your mortgage bank, the provision applies to you. 

Home Office Deduction 2012 in a Nutshell

Question from Janice in Chicago:

Hello John:

Happy Tax time. Hope this finds you doing well.

I am preparing my tax info to send to you. Just to be sure I have everything, what do I need to send regarding business or home office. I am not sure what is deductible now or if there are changes.  Thank you. Janice

Answer:

Hi Janice!!!

There are no big changes regarding home office.  If it's an employee home office, it essentially needs to be required by your employer.  If it's a business home office, it generally should be your main place of business.  In either case, the home office needs by be physically separated from the rest of the house - as by a wall or partition -- and used exclusively for business.  I will need to know the size of the office relative to the overall size of the whole residence.  You can measure office and home either size by square footage or by number of rooms.  Data required include total cost of the house, date of purchase, and all the home expenses that benefit both home and office -- such as heating, aircon, condo fees, snow removal, trash pickup, water, sewer, homeowners insurance, landscape and yard maintenance, repairs, etc, etc.  Also any expenses that benefit only the  home office -- such as painting, carpeting, cleaning, etc.

JC Leahy, MA Accounting
TaxHelpWhenYouNeedIt.com