lifetime learning credit

Tax

8 Ways Children Lower Your Taxes

Got kids? They may have an impact on your tax situation. Here are the top 8 things to consider if you have children.

  1. Dependents: In most cases, a child can be claimed as a dependent in the year they were born. Be sure to let us know if your family increased this year and we’ll take a look at whether you can claim the child as a dependent this year.
  2. Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax.
  3. Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child under age 13 so that you can work or look for work. Be sure to keep track of your child care expenses so we can claim this credit accurately.
  4. Earned Income Tax Credit (EITC): The EITC is a benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.
  5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child.
  6. Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution. Contributions are not deductible; however, qualified distributions generally are tax-free.
  7. Higher Education Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your taxable income.
  8. Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions.

As you can see, children can have an impact on your tax profile. If you’re a parent, we’ll go over your situation with you to make sure you’re getting the credits and deductions you’re entitled to.

Financial Planning Tax

Tax Incentives for Higher Education

The tax code provides a variety of tax incentives for families who are saving for, or already paying, higher education costs or are repaying student loans.

You may be able to claim a credit for the qualified tuition and related expenses of the students in your family who are enrolled in eligible educational institutions. The types of credits available are the Lifetime Learning Credit and the American Opportunity Tax Credit.

Different rules apply to each credit. If you claim an American Opportunity Credit for a particular student, none of that student’s expenses for that year may be applied toward the Lifetime Learning Credit.

You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

Financial Planning Tax

College Tax Credit – It’s Not Too Late!

It’s not too late to take advantage of the American Opportunity Tax Credit, a credit that helps parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2012. It can be claimed by eligible taxpayers for college expenses paid until 2012.

Here are six important facts about the American Opportunity Tax Credit:

  1. This credit, formerly known as the Hope Credit, has been expanded. Eligible taxpayers can claim qualified tuition and related expenses paid for higher education through 2012. Qualified tuition and related expenses include tuition, related fees, books, and other required course materials.

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  2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

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  3. The full credit is generally available to eligible taxpayers who make less than $80,000, or $160,000 for married couples filing jointly. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

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  4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

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  5. The credit can be claimed for qualified expenses paid during any of the first four years of post-secondary education.

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  6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to take either the credit or the deduction.

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If you would like more information about the American Opportunity Tax Credit please call us. We’re more than happy to help.

 

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