[suniluic]

Hello Experts -

I am looking for some advice on taxes because I am not able to figure it out. Here's the situation -

- I have been in the country for more than 7 years and last year filed as joint married.
- I am on an H1B visa and also studying part time MBA for which I am hoping to claim education credit
- My wife is on an F1 visa and earned about $20k in her assistantship and internship during the year. She paid a federal tax of 1250$.


Here is the strange part. When I calculate my tax (using 2007 number for estimate) I end up owing IRS only few hundred dollars. However, when I add the $20k earned by the wife the tax I owe jumps up to $4500. I am not sure what is the best way to file the taxes in 2009. We have collectively paid more than $40k in education in 2008.

Please help.
Thanks
Sunny

[AtlantaTaxExpert]

Sunny:

The reason the tax jumps up when you add your wife's income is that your wife's income is being taxed at YOUR marginal tax rate (the rate you paid on taxes on the LAST dollar you made in 2008).

It is possible that filing separately may result in a lower overall tax rate, but the only way to be sure is to prepare the returns BOTH separately and jointly and compare the results.

You WILL be able to claim the education credit, plus be able to deduct your education costs as an itemized deduction as well.

Contact me at the email address below if you need professional help filing.

[suniluic]

Thanks for your reply ATE. I will compare the two.

Is it safe to say that I cannot claim education credit when filing separately?

Thanks
Sunny

[suniluic]

Also, it seems like the lifetime education credit is decreasing as I am approaching the max MAGI allowed to claim for joint return.

Any thoughts?

I am also curious about education costs as itemized deduction.

Thanks
Sunny

[suniluic]

To complicate things further (I am trying not to ;) ) my employer paid a certain amount $10k as education reimbursement and I incurred a total cost 22k for my education.

Thanks
Sunny

[AtlantaTaxExpert]

I believe you CAN claim the education credit even if you file separately.

You can claim education expenses as an employee business expense IF:

- the education enhances your skills in your current employment.
- the education does NOT qualify you for another profession.
- the education is NOT required to meet qualifications for your current job.

The MBA normally meets all three criteria noted above. I have several clients who claim these costs as deductions on their return.

There IS an income limit on claiming the education credit, though, but tha limit goes UP when you file jointly.

The $10K employer-reimbursement must be factored into the deduction computations for BOTH the education credit and the employee business expense.