Recent Tax Changes Might Impact Financial Aid Awards
By Mike Szydlowski, Director of Financial Aid
Woodberry Forest School, Owner Tax Preparation & Planning

In September Congress passed legislation which extends some popular individual and business tax provisions that had already expired or were due to expire on Dec. 31, 2004.
Here are the highlights and the ones which could affect financial aid decisions:

1. The wider 10% bracket allowed for 2003 -04 will be continued until 2010, with increases for inflation. The new law also continues the 2003-04 marriage penalty relief for married persons filing jointly by keeping the endpoint of the 15% bracket for joint filers at double that of single persons through 2010.
   
   
2. The new law continues through 2010 the marriage penalty relief of 2003-04, allows married persons filing jointly to claim a basic standard deduction double that of single taxpayers. (Item #1 above relates to the tax rate, this item relates to the standard deduction) Items 1 & 2 will lower taxes for families yielding more discretionary income.
   
   
3. Avoiding a reduction scheduled for years after 2004, the new law keeps the maximum child tax credit at $1,000 through 2010 for children age 16 and under. The credit was scheduled to be $700 for 2005-2008, and then increase to $800 for 2009. Any credit reduces actual tax paid which impacts question #74 on the 2004-05 FAFSA.
   
   
4. The up-to-$250 Teacher's expense deduction for out-of-pocket expenses is extended through 2005; it expired in Dec., 2003. An 'above-the-line' deduction on Form 1040 (for 2003 Form 1040, line #23), not on Schedule A.
   
   
5. The new law retains for 2004-05 the pre-2004 deduction limit of $2,000 for a hybrid car ($5,000 to $50,000 for a truck or van) and the $4,000 credit limit for an electric car. Any credit reduces actual tax paid which impacts question #74 on the 2004-05 FAFSA.
   
   
6. For 2004, the child tax credit will be refundable to the extent of 15% of earned income exceeding $10,750, instead of 10%. The increase to 15% had been scheduled for 2005. The $10,750 earned income threshold will be indexed for inflation. This may increase the amount of tax refund for a family, you find this on the 2003 IRS Form 1040, line #65.
   
   
7. Individuals who itemize will have a choice on their 2004 & 2005 tax forms to deduct either their state income tax paid (as they have in the past) or their state and local sales tax, which has not been deductible since 1986. The main beneficiaries of this will be the residents who live in the states that do not levy a state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington state and Wyoming). Taxpayers can either keep track of every purchase subject to their states sales tax or use a table that will be provided by the IRS. If a taxpayer makes a large purchase (car, boat, etc.) he may add the amount of sales tax paid for that item to the table amount provided by the IRS. No new form will be created; a taxpayer will simply check a box on Schedule A to indicate whether their deduction is for state/local sales or income tax.
   
   
8. A loophole closed: SUV's, weighing in excess of 6000 lbs., placed in service prior to October 23, 2004 are still eligible for the $102,000 section 179 expense deduction. SUV's placed in service after that date are limited to first year expensing of only $25,000. However, because of the special bonus depreciation rules, a taxpayer could write off more than the $25,000 limit. Example: If you place in service an SUV weighing in excess of 6000 lbs after October 23rd you could write off up to $52,000 by combining the accelerated bonus depreciation with regular depreciation plus the $25,000 first year expense allowance. Other business equipment purchased in 2004 is still eligible for the $102,000 expense allowance.
   

There are other changes but they are more technical in nature dealing with Alternative Minimum Tax (AMT) vs. Regular Tax rates, essentially the new law extends until 2005 the full amount of non-refundable credits for both regular and AMT tax rates.

Preventing Identity Theft for Your Customers
By the Legal and Product Development Departments, American Student Assistance

Someone is out searching for your personal information. They can steal your name, social security number, date of birth, address—even your identity. In today’s online world, it is shockingly simple for criminals to find and use your personal information to obtain credit cards and identification; even to establish a new life under your name and with your information.

Over 27.3 million Americans have been victims of identity theft. Studies conducted by both Gartner Research and Harris Interactive indicate that between July 2002 and July 2003, an estimated seven million people were victims of identity theft.

Student aid professionals should not only be concerned about their own information; they must be equally concerned about protecting the personal information of students and parents. The Gramm Leach Bliley Act (“GLB”) enacted in 1999 protects the non-public personal information of consumers. Pursuant to the Act, federal regulators issued privacy rules that require financial institutions to adopt “safeguards” or practices to protect the personal information of all customers.

Here are some steps you can take to help protect the non-public personal information (“Personal Information”) of your customers:

• Safeguard – always treat Personal Information as you would want yours to be treated. Protect it against identity theft.
• Computers – computer passwords should be changed regularly and never shared. Computer terminals should always be locked to prevent unauthorized access to Personal Information contained on the computer or within the computer system.
• Printing - pick up printed documents from the printer quickly if they contain Personal Information.
• Access – restrict access to files and documents containing Personal Information only to those who have a business-related reason to access the information.
• Verify - when dealing with a business partner, verify that they in fact have an existing relationship (account) with a student or borrower and need to access that consumer’s information before discussing any Personal Information with them.
• Shred & erase – all media (paper, discs, CD-ROMS) containing Personal Information must be shredded or otherwise destroyed before disposal.
• Careful faxes - when sending Personal Information via fax, be sure to include a confidentiality notice on the cover sheet and notify the recipient that the fax is coming. Check the receiver’s telephone and fax number before sending the fax.

Ways to improve your privacy knowledge include:

• Taking an identity theft quiz at www.privacyrights.org/ITquiz-interactive.htm.
• Reading testimonials of identity theft victims at www.privacyrights.org/cases/victim.htm.
• Checking out the FTC’s identity theft Web site: www.consumer.gov/idtheft/.

For more information on preventing identity theft, contact the compliance or legal staff within your organization.

¹ Data from Consumer Sentinel and the Identity Theft Data Clearinghouse, FTC.
² Data from the Identity Theft: The Aftermath 2003, Identity Theft Resource Center, Summer 2003.
³ Pub. L. No. 106-102, 113 Stat. 1338 (1999)