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College Tax Savings Breaks For 2010

Rate Nerd — Wed, 09 Jun 2010 13:29:55 +0000

Cut your college costs with these 2010 tax breaks.

Financing a college education in the 21st century is no small feat.

According to the College Board, the average cost of tuition and fees at a four-year private college for the 2009-2010 academic year was $26,273 and $7,020 for a four-year public university. Add several thousands more for room, board, books and supplies. Fortunately, students, parents and graduates can get some of that money back on their 2010 federal tax return.

The American Opportunity, Hope and Lifetime Learning Credits are likely to yield the biggest tax savings. However, only one of these credits can be claimed per student per year. The American Opportunity and Hope Credits cannot both be claimed on the same return for any students in the same household. However, if the American Opportunity or Hope Credit is claimed for one student, the Lifetime Learning Credit can still be claimed on the same return for another student.

The following requirements apply to all three credits:

Filing status on the return cannot be married filing separately.
The student must be you, your spouse or dependent for whom you claim an exemption.
A dependent cannot claim the credits if claimed on another person’s (i.e. parents’) return.
If you do not claim the dependent exemption (even if entitled to the exemption), you cannot claim a credit based on that dependent’s expenses.
Claim credits on Form 8863 and file with your Federal 1040.

The American Opportunity Credit, scheduled to expire after 2010, is a modified version of the Hope Credit. It’s worth up to $2,500 for tuition, fees and course materials per student for the first four years of postsecondary education. Even if you have zero tax liability, you can get up to 40 percent as a refund. It phases out at higher incomes and cannot be claimed with the Hope Credit on the same return.

The Hope Credit is worth up to $1,800 per student for the first two years of postsecondary education. Expenses may include tuition, fees and course-related materials (as long as the expense for those materials are required to be paid to the educational institution). It phases out at higher incomes, and a student or family claiming the Lifetime Learning Credit or Tuition and Fees Deduction for that same student is ineligible.

If you don’t qualify for the American Opportunity or Hope Credits, consider the Lifetime Learning Credit. Up to 20 percent of the first $10,000 in higher education expenses per family can be claimed for an unlimited number of years. It phases out at higher incomes.

You may also qualify for the Tuition and Fees Deduction, given on a per-student, per-year basis. In other words, you cannot claim the deduction for Student A if you’re claiming one of the above credits for that student, but you may still claim the deduction for Student B. You can deduct up to $4,000 for tuition and fees on Form 8917, regardless of whether you itemize or take the standard deduction. The deduction phases out at higher incomes, and cannot be claimed if you’re married filing separately or claimed as a dependant on another return.

In addition to these credits or deductions, up to $2,500 in student loan interest paid each year for qualified higher education expenses can be deducted on your Federal 1040, even if you don’t itemize. This deduction phases out at higher incomes, and is reduced by non-taxable distributions from a Coverdell Education Savings Account, savings bond interest used for education expenses and scholarships or veteran’s education benefits. Married taxpayers filing separately and people claimed as a dependent on another return don’t qualify.

2010 is also the last year costs paid or incurred for computer technology, equipment and Internet service for students living at home count as a qualified expense for Qualified Tuition Programs (aka 529 Savings Plans). Items must be used by the beneficiary and beneficiary’s family during the years enrolled at an eligible institution.

Additional exceptions may apply to the aforementioned tax breaks, and other educational tax benefits exist for student loan cancellations and repayment assistance, Coverdell Education Savings Accounts, education savings bonds, employer-provided educational assistance and work-related education. Learn more about all education tax benefits in Publication 970 at www.irs.gov.

- Article Courtesy of ARAContent

Bigger Federal Tax Credit For Paying For College

Rate Nerd — Mon, 29 Mar 2010 15:08:22 +0000

Finally, a Bigger, Better College Tax Credit.

A key tax credit that helps families pay for college gets a major boost in the 2009 stimulus bill. The credit is bigger, covers more years of college, and helps more taxpayers.

The law renames the Hope College credit for 2009 and 2010—it’s now known as the American Opportunity tax credit—and hikes its value from $1,800 to $2,500 for 2009 and 2010.

Because a tax credit reduces your tax bill dollar for dollar, this basically means Uncle Sam will give you up to $2,500 per year for each qualifying college student in your family.

And, unlike the old Hope credit, which was available only for a student’s first two years of college, the new American Opportunity credit can be claimed for four years of post-high-school education. You get the maximum credit if you spend at least $4,000 in qualifying expenses, which now include the cost of books as well as tuition and fees.

More credit for lower- and higher-income taxpayers

If you’re a lower-income taxpayer and the credit is worth more than your tax bill for the year, up to 40 percent of the credit (as much as $1,000) will be paid to you as a tax refund. The old Hope credit could wipe out your tax bill but never give you cash back.

There’s also good news for some higher-income taxpayers: The new rules greatly expand the number of families who will qualify for the credit. The old Hope credit was phased out for single taxpayers with Adjusted Gross Income (AGI) greater than $50,000 and it disappeared altogether at $60,000. For couples filing jointly, the credit phased out between $100,000 and $120,000 of AGI. (AGI is basically taxable income before subtracting personal and dependent exemptions and standard or itemized deductions.)

Now the credit starts to decrease at $80,000 for single taxpayers and disappears at $90,000. For married taxpayers filing jointly, those thresholds are now $160,000 and $180,000.

What if you already used the Hope credit for the first two years of a child’s college bills? If your child is a junior in 2009, you can use the American Opportunity credit for the child’s junior and senior years.

Who qualifies for the American Opportunity Tax Credit?

The other rules for qualifying for the American Opportunity credit are the same as for the Hope credit.

The student must be enrolled at least half-time in a program pursuing an undergraduate degree or other recognized educational credential. You can claim the credit for expenses paid for yourself, your spouse, or a child who is claimed as a dependent on your tax return. If the student is claimed as a dependent on a parent’s tax return, the parent gets the credit, regardless of who actually pays the qualifying expenses.

The changes in the Hope credit do not affect the Lifetime Learning credit (which applies to higher education not covered by the Hope or American Opportunity credit) for education after the first two or four years, or for classes taken (1) less than half-time or (2 ) not in pursuit of a degree.

The Lifetime Learning credit, which can be claimed for graduate school, for example, or a single post-high-school class, is worth up to $2,000. (The credit is actually 20 percent of the first $10,000 of qualifying costs.) The income phase-out zone is lower than for the new American Opportunity credit. For 2008 and 2009 returns, the Lifetime Learning credit gradually disappears as AGI rises from $50,000 to $60,000 on single returns and from $100,000 to $120,000 on joint returns.

Certain parents should just say no to the American Opportunity Tax Credit

Despite all the improvements, some parents should skip the American Opportunity credit and instead stick with the Hope credit when they file their 2009 returns in 2010. This applies to families with students who are freshmen or sophomores in colleges and universities in parts of the Midwest.

As part of legislation designed to aid victims of the 2008 floods and other weather-related disasters, Congress doubled the Hope credit for students attending school in parts of seven states: Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin. That means qualifying students can receive a Hope credit worth $3,600 in 2009—$1,100 more than the new, improved American Opportunity credit. IRS publication 970 has a list of the counties in each state in which qualifying schools are located.

–Content courtesy of TurboTax contributed to this article

How To Find College Scholarships

Rate Nerd — Wed, 06 Jan 2010 16:36:31 +0000

You can still get College Scholarships – here’s how.

A slow economy and dwindling resources for financial aid may have you worrying more than ever about funding your child’s college education. But there are still scholarships available for those who pursue them and take the all-important step of applying long before the school year starts.

Applying for scholarships should be one of the first steps in your search. However, scholarship myths continue to flourish and need to be dispelled.

Myth 1: Billions of scholarship dollars go unclaimed.

In reality, the number of unused scholarships is minuscule. You’ll need to do your research and apply early to have a chance at getting your share of available funding.

Myth 2: Scholarships go only to the best students.

Many scholarships are awarded based on elements other than academic achievement. Some scholarships are based on the student’s major field of study, involvement in extracurricular and community activities, ethnicity and geographic origin, or other factors.

Myth 3: Scholarship searches are worth paying for.

This myth eventually will die as people discover the many free resources available on the Internet or in the print media.

So how do students and their parents sort through the myths and get to the facts? Start the process early – January is perfect for the next school year – and utilize the resources around you. To find scholarship opportunities, start with your high school guidance counselor and local library for a list of possible resources. Next, check with your college financial aid office. Most states and many colleges offer scholarships, so students should also inquire about them. Finally, the Internet and organizational Web sites are excellent places to search. Remember, this information should always be free.

Don’t count yourself out just because you are not the valedictorian, class president or star athlete. There are scholarships available for many interests, backgrounds and abilities. The bottom line is apply now, and the more scholarships for which you apply, especially local and regional opportunities, the better your odds are to be selected.

Though the scholarship application process can be time consuming, most scholarships require similar information. Once you complete your first application, you can easily re-use the same information for additional scholarships.

Scholarships come from many sources, but the student may have to do some detective work to uncover them. For example, the Discover Scholarship Program awards up to $400,000 in scholarships annually to high school juniors nationwide to support continued education and training beyond high school. Since 1991, Discover has awarded more than $16 million in scholarships to nearly 6,500 students.

Scholarship search tips

Start early – Experts recommend college-bound students and their parents start looking as early as their freshman year in high school. By identifying potential awards, students can choose classes and activities that will increase their chance at winning a specific award in the future.
Use the Internet – But be wary of scams posing as scholarships. If a scholarship is reputable, you should be able to find information about it through multiple sources. Try to use two sources and make sure the profile submitted is accurate; paying fees does not increase your chances of winning.
Think small – Competition can be tough for large awards. Smaller awards ($1,000 and less) typically have less competition and are easier to obtain.

Additional free scholarship Web sites you may want to visit include:

* www.collegeboard.com/scholarships

* www.collegeplan.org

* www.collegescholarships.com

* www.collegenet.com

* www.scholarships.com

– Article courtesy of ARAcontent

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