The days are getting shorter and mornings are cooler; school buses are now encountered as part of the morning commute. Fall is upon us and colleges will soon be in full session. Following are some tax tips that parents and college students may find helpful come next spring to take full advantage of tax deductions and credits for families who of college students.

1.    Save all receipts related to attending post-secondary educational institutions.

2.    Students who are under age 24 at the end of the year and enrolled full-time (at least 5 months) can and should be claimed as a dependent on their parent's federal income tax returns.

3.     American Opportunity Credit can be up to $2,500 per eligible student and for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. Eligible taxpayers have modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

4.    Lifetime Learning Credit can be up to $2,000 (20% credit) for qualified education expenses of up to $10,000 paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).

5.    Tuition and Fees Deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for eligible students if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).

6.    Student loan interest deduction if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct up to $2,500 in interest paid on loans used to pay for higher education.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you. The American opportunity credit is calculated per student while the lifetime learning credit, tuition and fees deduction and student loan interest deduction are all calculated per household/tax return.

For more information, visit the Tax Benefits for Education Information Center at or check out Publication 970, Tax Benefits for Education, which can be downloaded at or ordered by calling 800-TAX-FORM (800-829-3676).. Penn State Extension's Your Money Your Taxes website will also provide you with additional information about federal and Pennsylvania income taxes.

Penn State is committed to affirmative action, equal opportunity and the diversity of its workforce.

June: Weddings and..... the IRS?


In America, June is often thought of as the first choice of months in which to be married. If you are planning to marry soon one of the more unromantic aspects you should handle before or soon after the wedding has to do with the IRS. The following seven tips for newlyweds can help decrease stress come tax time!

1.     Prior to filing your next tax return, notify the Social Security Administration of any name change to assure you receive your new card with your new name. Use form SS-5 which can be downloaded from, or obtained by calling 800-772-1213 or from a local Social Security office. Take the completed form and required supporting documents to your local SSA office.

2.     Request and complete a change of address from with the US Postal Service to assure you receive any IRS correspondence or refunds.

3.     Also notify the IRS if you move by downloading form 8822 from website or obtain by calling 800-829-3576

  1. Report name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year with the correct identifying information.
  2. To avoid a nasty surprise of owing the IRS at the end of the year, use the IRS online withholding calculator to determine the correct amount of withholding required for your new filing status and household income. The calculator will also give you information necessary to complete a new Form W-4, Employee's Withholding Allowance Certificate. You can fill this form out and print it and then give to your employer to assure they withhold the correct amount of taxes from your pay.
  3. Consider using the form 1040 - the "long form" to maximize all tax deductions, allowances and credits you may be eligible for.
  4. Regardless of when you married, the IRS uses your marital status on December 31 to determine if you were considered married for the year. While you are not required to file jointly you're your spouse, in most circumstances filing jointly is most beneficial resulting in paying the lowest tax.



Last week I received the following in an e-mail from my soon-to-be 26 year old daughter. A college graduate with two degrees, she recently changed jobs. "I need to figure out what I am doing with the money from my old job (quickly). Can I just put it into an IRA account that I already have set up or do I need to set up a new one? I'm an idiot when it comes to these things so your help would be appreciated. I'm assuming I can do a direct rollover into an existing account but I just need to know what to do so they don't pay it out to me. Thanks!"


My initial reaction upon reading her request was smug satisfaction that after all the years of discussing financial matters and observing her rolling eyes and looks of utter disgust and disbelief, she finally appreciates my years of providing her with expert counsel! She was seeking and valuing my input! When I reread her message, other thoughts came to mind. "I'm an idiot when it comes to these things." stood out. I've hear variations of this sentence from many participants in Extension workshops I've conducted about money management, retirement plans and investing. Even after we've discussed various tools and strategies, people still want to know, "What should I do with my money?" just as Jocelyn wants to know what she should do with her retirement funds.


Based on the questions she asked and her use of terminology, she has a decent understanding of the recommended protocol for handling the retirement funds from her previous employer.


Here's what she does know about her situation:

1.      Generally you have 60 days from the time your previous employer notifies you that you need to make a decision on what to do with your retirement funds or they will send you a check for the balance of your account minus 10% held back for the IRS.

2.      She knew that one of her options would be to move the money into an IRA which is an account she has set up using a provider of her choice as well as investments that she chose.

3.      She used the term "direct rollover" which means that she should arrange for the check for all of her retirement funds from the old plan to go directly into the IRA, avoiding the 10% IRS withholding, as well as income taxes and a penalty for early distribution if she closed the account and asked that the check be mailed to her.

4.      Indicates that a payout would be a bad thing and that by moving the money from one tax-sheltered retirement fund to another she is on her way to a more comfortable future instead of taking the cash today and being back at square one in saving for future expenses.

5.      She already has an IRA set up, something we discussed and she acted on a while ago when she left her first full-time position following college graduation.

Jocelyn doesn't suffer from a lack of knowledge, but rather a lack of confidence. She just needed confirmation that her plans were the best strategy to implement but lacked the confidence to take those steps on her own.


What's holding you back from financial success? Is it a lack of knowledge or a lack of confidence?



Talking Taxes

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Talking Taxes


April 15 is the annual deadline for filing your federal and Pennsylvania State Income Tax returns. Now is a great time to use these documents to assess your financial situation and plan for your 2011 income tax bill. If you received a refund, do you know why? Take some time to review your return.


Let's start with your adjusted gross income. Do you expect your income to increase or decrease compared to last year? One way to decrease your AGI is to contribute to an employer sponsored retirement plan or contribute to a traditional IRA. Self-employed individuals also have the opportunity to contribute to several other types of retirement plans that allow for tax avoidance today.


Next consider how many personal and dependent exemptions you will have. Each household member is worth $3,650 in exemptions. In other words for a family of four - $14,600

Also consider your filing status. Married filing joint and under age 65 is $11,400, if both are age 65 or over $13,600.


Children under the age of 17 are worth $1,000 in child tax credit. If your child will turn 17 in 2011, your income tax bill could be increased by this $1,000. Children who are enrolled in college and meet certain guideline can qualify their household to receive up to $2,500 in the American Opportunity Tax Credit, $1,000 of which is refundable. In order to receive this credit the household must claim the student as a dependent - which parents can do as long as the student is under age 24 and considered a full-time student for at least 5 months of the year.


Retirement savers credit - if you meet income guidelines, contributions to employer sponsored retirement plans, traditional IRA's and even Roth IRA's can be included in calculating this credit which reduces your tax bill.


Earned income tax credit - whether you work for someone else or for yourself - if you have earned income and meet income guidelines, you may be eligible for this tax credit, even if you don't owe any federal income taxes!


Your 2011 federal income tax bill may be up to $800 more than your 2010 bill due to the expiration of the "Making Work Pay" tax credit. This credit was calculated as 6.2% of your earnings up to a $400 limit per worker. While you won't see it on the 2011 tax return, somewhat in lieu of this credit a change was made to your federal social security tax withholding. Normally the employee share of contributions made to Social Security is 6.2% of wages up to a certain income limit. For tax year 2011 ONLY, this has been reduced to 4.2%. You may have noticed a slight increase in your paycheck at the beginning of the year. Remember, come January 1, 2012, your check will be reduced by 2% as your contribution to Social Security will increase from 4.2% to the usual 6.2%.


Finally, if your refund includes paycheck withholdings, consider making adjustments to your W-4 form filed with your employer. Completing that simple form confuses many workers and the IRS is trying to make it less so. has a link to an online withholding calculator that will help you determine the correct income tax withholding for your situation. If you do decide to change your withholding to reduce the amount of taxes taken from each pay (stop paying taxes you don't owe!) also make plans for what you will do with this newfound money. These funds could be used to establish or increase your emergency fund, pay off credit card balances, pay off other types of debt or maybe even help fund a well-deserved vacation.


For more details on income taxation, check our extension website



This is my sixth year to coordinate the Internal Revenue Service Volunteer Income Tax Assistance Program (VITA) in my four-county service area of Cameron, Elk, McKean and Potter counties. In addition to training and monitoring volunteers, I also spend February, March and part of April interacting with clients on a one-to-one basis completing their federal and state income tax returns as well as rent and property tax rebate forms for those who are eligible. I use this opportunity to not only help them meet their legal obligations, but also as a teachable moment to help increase their financial literacy and skills.

Just yesterday I shared with a single mom of four that next spring, when she is filing the FAFSA (Free Application for Federal Student Aid) form for her first college-bound student, she could use information from her 2010 tax returns and later, once her 2011 return was completed she could go back and amend the information she inputted. There are various deadlines to filing the FAFSA, but folks have until April 15 to file their federal return and can also file an extension, making the return due in October. People who don't understand the system panic and may seek the services of a paid preparer in order to meet the FAFSA deadline. For many of the clients I see, tax preparation bills can exceed $200, money that could be better used to meet family obligations.

So the primary reason I got involved with VITA is that I don't believe you should have to pay someone else to help you meet your legal obligation of filing an annual income tax return. The tax system has become so complex and confusing, even calls to the IRS for assistance have been documented as resulting in receiving erroneous information. Additionally, beginning for the 2010 tax season, the IRS as well as Pennsylvania have foregone mailing income tax packages to taxpayers - forcing them to either use computers or seek the services of a paid preparer to get their forms. Many of the folks I interact with either don't have computers or lack the requisite skills to use them to prepare their returns. Many have disabilities or limited education and lack the sophistication to follow-through on their legal obligation.

Yesterday I had a retiree come for her VITA appointment, Her TOTAL 2010 income was $10,000 or so in social security retirement benefits, under $3,000 in pension benefits plus she had won $5,000 from the Pennsylvania Lottery (don't even get me started on that topic!) We ask that VITA clients bring last year's tax returns which sometimes provides additional information required for proper preparation of this year's return. She had seen a paid preparer last year who charged her $75 for their services. In reviewing that return I discovered her financial situation was the same as this year, except for no lottery winnings. Because of the sources and amounts of her income SHE WAS NOT REQUIRED TO FILE EITHER A FEDERAL OR STATE INCOME TAX RETURN. SHE PAID $75 UNNECESSARILY! Because she is under 65, her standard deduction is $5,700 and her personal exemption is $3,650 - added together, her first $9,350 is TAX-FREE - in this case her income was so low that her social security benefits didn't factor into her taxable income. Because her winnings were from the Pennsylvania Lottery, that is not taxable and Pennsylvania doesn't tax pensions or social security.

I didn't have the heart to tell her about the futility of her $75 spent on returns that weren't necessary - plus I also kept to myself that the paid preparer had reported her pension on her last year's state return. $75 may not sound like much to some people, but this was money she could ill afford to pay. What is done is done. I did explain to her the filing requirements and informed her that unless she returned to work, or the tax laws change, she would not have a filing requirement for either the federal or state.


Some things you don't miss until they're gone. Remembering what you've lost can sometimes be the hard part. Take the following steps today so in the event your wallet is lost or stolen, you can spring into action immediately and make a quick recovery.


1.     Remove your Social Security card from your wallet, memorize the number if you haven't already done so, and store in a safe place at home like a strong box or store in a bank safe deposit box.

2.    Remove everything remaining in your wallet and make photocopies of the front and back of each item important to your financial life. Put a date on this copy and store in your home file where you can easily retrieve it if/when you need it.

3.    Note on your calendar to perform the same procedure a year from now.

ACTION steps to take in the event your wallet is missing:

1.     Plan to immediately cancel all your credit and debit cards when your wallet is lost or stolen and request new cards as well as new account numbers.

2.    Report your missing wallet to the police to create an official record of the incident in the event that it was stolen.

3.    Report missing driver's license to your state's department of motor vehicles and request a new one.

4.     Alert the fraud departments of the three major credit reporting companies. They will place a fraud alert on your name and Social Security number, and you can request that they alert you before opening a line of credit in your name. (Equifax: 1-800-525-6285; Experian (formerly TRW): 1-888-397-3742; Trans Union: 1-800-680-7289)

5.    Wait about a month and then check your credit history with all three credit bureaus to check for possible identity theft.

6.    Request a replacement Social Security card (If you failed to follow step 1 above) and avoid carrying it in your wallet in the future.

7.    Replace your health insurance cards by either contacting your employer's HR department or the health insurance company. Contact the Social Security Administration to replace your lost Medicare card.

8.    Contact any other companies whose cards you may have lost. Refer to your master copy that you photocopied and stored at home to easily remember what you lost and who to notify.



Another tax return preparation season is upon us and this is my sixth year of involvement with the IRS sponsored VITA (Volunteer Income Tax Assistance) program. I use tax preparation as a teachable moment to individualize education to families based on their unique set of financial circumstances. I help them understand the income tax code, but also develop strategies to reduce debt and save toward goals such as retirement, home purchase or post-secondary education. In addition to preparing federal and state income tax returns, the software also enables us to prepare Pennsylvania's Rent and Property Tax Rebate forms.

On Thursday, I assisted an elderly couple with preparing their rebate forms. They showed me a solicitation letter they received in the mail that, while not a scam per se, was very deceiving. Starting with a Harrisburg Address - while the letterhead also indicated they were a non-governmental agency, the letter looked very official including a client number. It also indicated they could be eligible for $975 rebate - this is only in effect for larger cities such as Philadelphia and Pittsburgh. In red lettering it indicated the need for action by March 18. In reality, the deadline for filing this form is June 30 and for the past few years the deadline has been extended to December 30. The kicker for me was, they were going to charge $39 if paying by check or $41 if paying by credit card to prepare the forms. AND clients were to prepay before any work was done!

Not only can seniors get these forms completed for FREE at VITA sites like mine, TCE (Taxpayer Counseling for the Elderly - another IRS program)sites and even state representative and senator office employees can assist in preparing the forms... again for FREE!

I called Representative Matt Gabler's office and they too had seen the solicitation letter. Mention of it was made in the newsletter they create.

They thought they made a good financial decision. "Why not pay off the car and truck loan with our savings? We will be debt free, won't have to remember to make monthly payments and we'll avoid paying interest on those loans! After all, popular financial gurus advocate being debt free, how could we go wrong? "

 Had they used funds from a savings or checking account, cashed in a CD or taken a distribution from a Roth IRA to pay off these debts there wouldn't have been a problem and I wouldn't be writing this article. Instead this retired couple took a distribution from their tax-sheltered accounts (pensions, 401K or Traditional IRA's.) Upon taking the money from their accounts - the previously tax-sheltered funds were now subject to taxation.

 What follows is a brief explanation of income taxation for retirees. Add up all income excluding Social Security - interest, dividends, rental income, and distributions from IRA have and pensions etc. These are all "subject" to taxation. Continuing with our example - add up Social Security payments. Now add half of Social Security to other types of income. Any amount in excess of $32,000 is also subject to taxation. Up to 85% of social security benefits can be subject to taxation based on other income. From the amount that is subject to taxation - subtract $13,600 which is the standard deduction for a married filing jointly couple who are both aged 65 or older. Subtract another $7,300 which is for two personal exemptions. In other words, of the amount that is subject to taxation - the first $20,900 is tax-free - the remainder is your actual taxable income.

 For our couple under discussion, $9,200 was subject to 10% tax rate resulting in a federal income tax bill of $920. The distribution also increased their income that is used in calculating eligibility for Pennsylvania's Property Tax Rebate Program so they were not eligible for the $250 rebate they would have received had they not taken the large distribution. Added together the $920 and $250 equals a $1,170 mistake.

 As it turns out, the decision to become debt free was much more expensive than paying a few more months of interest. This might be considered a case of being penny wise and pound foolish.

 How can you avoid making a similar mistake? Become more familiar with various savings and investment vehicles and pay attention to how they are treated for tax purposes. Learn more about your personal income tax situation. Even if you pay someone to prepare your tax return, review it to understand how the calculations are performed. Think about putting money in taxable accounts like savings accounts, tax-deferred accounts such as IRA's and 401K's and tax-free accounts such as Roth IRA's (you pay taxes when you invest!) As you pay for expenses in retirement you can control to a certain extent how much tax you pay based on which accounts you draw your funds from.

Important Tax Law Changes for 2010

·         Due date to file is April 18, 2011

·         Health Care Professionals who received canceled debt notices for education loan repayment or forgiveness programs will not need to include that canceled debt as income if due to programs intended to increase availability of health care services in underserved areas or health professional shortage areas. To learn if you are eligible consult your loan program office. This change is part of the Affordable Care Act of 2010 and is retroactive to 2009. You will need to file a form 1040X if in 2009 your canceled debt is now considered an eligible loan repayment or forgiveness.

·         $1,900 is the limit of taxable investment income children can have without it being subject to the parent's tax rate.

·         For households who do not have enough expenses to itemize their deductions, the following are standard-deduction amounts based on IRS defined filing status:

o   $11,400 Married Filing Jointly or Qualifying Widow(er)

o   $8,400 Head of Household

o   $5,700 Single or Married Filing Separately

·         Personal and Dependent Exemptions remain at $3,650 each.

·         Making work pay credit of up to $400 again available this year. Certain households who did not receive the $250 economic recovery payment in 2009 but got it in 2010 will reduce their Making Work Pay Credit by that amount.

·         Earned Income Tax Credit - Maximum income amounts and credit available

o   $13,460 ($18,470 MFJ- Married Filing Jointly) no qualifying child - credit $457

o   $35,535 ($40,545 MFJ) one qualifying child - credit $3,050

o   $40,363 ($45,373MFJ) two qualifying children - credit $5,036

o   $43,352 ($48,362MFJ) three or more qualifying children - credit $5,666

·         2010 is the last year employees could opt to receive up to $1,830 of their earned income tax credit with their paychecks. The IRS is dropping this program because so few workers used it.

·         Additional Child Tax Credit - eligible households could receive this refundable credit if they earned at least $3,000 and had an eligible child.

·         In addition to splitting your refund into up to three separate accounts, you can also purchase up to three U.S. Series I Savings Bonds and receive the balance of your refund as a check or direct deposit to a bank account.

·         Medicare Part D recipients who received a $250 rebate to assist with the "donut hole" drug plan coverage gap do not need to report this income nor pay taxes on it.

·         Standard Mileage Rates:

o   Business Related mileage 50 cents/mile

o   Medical/Moving related mileage 16.5 cents/mile

o   Charitable purposes mileage is 14 cents/mile

·         First Time Homebuyer Credit

o   If you took advantage of the credit in 2008 you must begin the 15 year repayment of that credit

o   For first time homebuyer's in 2010 to qualify for the credit of 10% of the purchase price up to an $8,000 credit, you had to meet the September 30, 2010 settlement deadline. This refundable credit will not require repayment.

·         Up to $13,170 in adoption qualified expenses can be claimed toward the Adoption Tax Credit which is part of the Affordable Care Act of 2010.

·         All unemployment compensation received in 2010 is subject to taxation. For 2009 up to $2,400 could have been excluded from income.

Next month I'll share information about the recently passed tax legislation included in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.



The early bird doesn't always get the worm. Moreover, said a consumer-finance expert in Penn State's College of Agricultural Sciences, being in a hurry to file your federal income tax forms in pursuit of a quick refund isn't always the best idea.


Tax-filers eager to receive their federal income tax refund can use the services of commercial, for-profit tax preparers as early as December and thus get a jump on receiving their refunds. Robin Kuleck, consumer-finance educator and director of Penn State Cooperative Extension in Elk County, points out that using this method can have some drawbacks.


"Commercial preparers can complete your income tax return early because they use the data recorded on your last paystub of the year," Kuleck said. "However, this data may be incomplete because your paycheck doesn't show your family's entire financial picture.


In fact, companies that issue certain 1099-MISC forms -- as well as brokers, brokerage firms, and mutual fund companies that issue Forms 1099-B -- have until February 15 to issue these forms, which are required to accurately complete your various tax returns, Kuleck noted.


"As you rush to be the early bird, what may happen is that you'll pay for return preparation and you also may decide to accept a refund anticipation loan, which carries an additional fee," she said. "By late February you then may receive additional information necessary for an accurate tax return. You will be required to file an amended return that includes this new information, and -- you guessed it -- pay yet another fee."


So, how do you go about filing an accurate return while avoiding or minimizing preparation fees? Kuleck said it starts with developing a good recordkeeping system, and knowing what is important to keep. IRS Publication #552, "Recordkeeping for Individuals" answers many common questions.


Families earning less than $49,000 per year are eligible for free income tax assistance through such IRS-sponsored programs as the Volunteer Income Tax Assistance (or VITA) program and the AARP Tax Counseling for the Elderly program. You can locate local VITA sites by visiting the IRS website at (key word "VITA") or by calling (800) 906-9887. Computer-savvy taxpayers can complete their own taxes using free online software.


"Pennsylvania has arranged with some software companies to provide free or low-cost state and federal income tax return preparation to individuals who meet certain requirements," Kuleck said. "There's more information about e-filing at the Pennsylvania Department of Revenue web site (;  click on the "individual" link. Always save a paper copy of your tax returns and supporting documents in your permanent home files -- an important element of your home record keeping system."


More tips and strategies for making the most of your federal and state tax returns are available at the Penn State Cooperative Extension "Your Money Your Taxes" web site (

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