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Good news for parents and their high-achieving kids: Top colleges have NOT gotten tougher to get into

So, time for a bit of good news for anyone who has worried about how they, or a child or grandchild of theirs, will ever get into a decent college: It turns out that the super-low acceptance rates you’ve heard about are partly a matter of what I would call Irrational Overapplication Syndrome.

In short, as Kevin Carey of the New America Foundation explains, an explosion in the number of colleges that students apply to–it’s not uncommon for 17-year-olds to send applications to more that a dozen schools–means that acceptance rates may drop even though schools are NOT more selective than they used to be. “The growth in applications per student creates a vicious cycle, causing admission rates at the best schools to artificially decline, students to become more anxious, and the number of applications per student to grow even more,” writes Carey in The New York Times. Once you eliminate the kids who have no hope of entry to the top schools, the acceptance rates for qualified candidates are not much different than they were in the past.

So, getting into a good school isn’t especially more difficult now than it’s been in the past. Paying for it, on the other hand…

Will Congress — new or old — do anything about expiring tax breaks?

The election is over, the people in their infinite wisdom have spoken…but here we are in mid-November and we still don’t know for sure what the tax laws are going to be for this year.

The problem is that a bunch of tax breaks and benefits have not been extended to 2014. These include:
–The $4,000 deduction for higher education tuition & fees.
–Deductions for state and local sales taxes.
–The ability to donate up to $100,000 from your IRA to a charity instead of taking a taxable required minimum distribution.
–The $250 deduction for classroom expenses for teachers in grades K-12.
–Credits of up to $500 for energy-efficient home improvements.
–The ability of businesses to write off more than $25,000 in new asset purchases.

The Wall Street Journal summarized
tax breaks it thought Congress should address. A lame-duck session might do something about all of this. Or it might do nothing. But either way, until we know for sure what the tax laws are for 2014, the IRS can’t finish programming its computers, which means that this is likely to be another tax season in which taxpayers will be unable to file their returns in early or even late January.

Watch this space for an update.

Paying for college when you can’t pay for college

Every year I consult with clients who have children applying to college and who don’t have enough saved–or don’t have anything saved–to cover the costs of a higher education.

In The New York Times, Ron Lieber has a good piece guiding parents–savers and non-savers alike–to figuring out how much a school might actually cost you and how you might pay for it.

People wanting to get a handle on both the cost of schools and the financial aid process can get started by going to the College Board and learning how to calculate how much you might be expected to pay for college.

The initial sticker shock guaranteed when you first see the cost for a year of studying and living at one of our finer institutions (I’m looking at you, $61,920-per-year Bennington!) shouldn’t stop you from learning more and having your child apply to schools. As Lynn O’Shaughnessy, a college consultant and friend of JoeTheTaxGuy, points out, the average grant to freshmen receiving aid now tops 50% of the cost of tuition & fees.

Another good site, from the National Center for Educational Statistics, is loaded with information on not just how much schools cost, but also what percentage of their students receive aid. Seeing that more than 85% of students at a school your child likes get at least some aid may help put a slightly rosier frame on this exercise.

Pay your taxes — or lose your driver’s license! NY State has a cool idea to convince reluctant tax-payers.

I regularly tell clients that cash-starved states have become very entrepreneurial and even aggressive in their tax collection efforts. If you earn money in a state, the tax department will probably be willing to go to court to collect income taxes even if you live hundreds of miles away. (I’m looking at you, New York State.) Revenue departments review business filings and public records to determine if a business has any type of a presence (called “nexus” in tax-geek world) that would make the business liable for state taxes. I even saw an author get a letter from a state tax department informing her that she owed taxes on any books that she sold directly as part of a speaking tour.

And now, something new: Don’t pay your state taxes and you could lose your driver’s license.

Again, we turn our lonely eyes to Albany, where thousands of drivers have had their licenses suspended, as The New York Post reported. The state program targets residents who owe more than $10,000 in back taxes.

The program has resulted in more than $50 million in back taxes coming into state coffers. You can’t argue with success.

Get some reward points when you opened a bank account? Surprise! They’re taxable income!

Did you open a new bank account recently and get rewards points that can be used to buy merchandise? If so, good for you.

Did you know that those points are going to be taxable income? Not so good for you.

In Shankar v. Commissioner (143 T.C. No 5), the Tax Court ruled that the points you get for opening a bank account are taxable income, because they are in essence the equivalent of interest on the money that you deposited into the account. As Forbes Magazine points out, the value of the points becomes taxable when they are actually turned in for something of value.

Banks are expected to issue Form 1099, showing the value of the points, when depositors convert the points into merchandise, whether that’s an airplane ticket, clothing, or even (presumably) a toaster.

If you really have time on your hands you can get a copy of the case by typing “Shankar v. Commissioner” into your web brower and clicking on one of the PDFs that will probably show up at the top of your search request.

By the way, none of this affects the tax-free status of frequent flier points that you get from airlines. So there is that.