August 2011 Archives
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 www.irs.gov or check out Publication 970, Tax Benefits for Education, which can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).. Penn State Extension's Your Money Your Taxes website http://extension.psu.edu/income-tax will also provide you with additional information about federal and Pennsylvania income taxes.
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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 www.ssa.gov, 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 www.irs.gov website or obtain by calling 800-829-3576
- 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.
- 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.
- Consider using the form 1040 - the "long form" to maximize all tax deductions, allowances and credits you may be eligible for.
- 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.