February 2021 Question and Answer

February 2021 Question and Answer

Question:

I’m working on my Master’s degree online. Can I write off any of my tuition on my tax return?


Answer:

You can deduct up to $4,000 in tuition expenses in 2020 but the deduction begins to phase out for single taxpayers with income of $65,000. This deduction is completely eliminated for 2021 and beyond.


However, you may prefer to take the Lifetime Learning Credit. It provides a credit of up to $2,000 on your tax bill and has similar phase out thresholds as the deduction. The phase out thresholds will increase in 2021, due to the elimination of the tuition expense deduction. As an extra bonus, there is no limit to the number of years you can claim the credit. The credit may be a better option because tax credits are generally more valuable than tax deductions since a tax credit directly offsets the tax you owe. Tax deductions only lower the amount of income on which you are taxed.


Question:

My business sells goods online and my customers live all over the world. Do I have to pay taxes on income earned from other countries?


Answer:

Most countries will require you to pay taxes only if you have a meaningful presence in their country. This could mean maintaining an office or warehousing inventory in their country. If your business has no connection to a foreign country other than sales to its citizens, generally you won’t have to worry about paying taxes there. But international tax is complicated. Consult with your tax professional if you have specific questions.


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