- Days left
For anyone with a child in college, filing a tax return for 2009 should be a little less painful.

While filing your taxes is the last thing you want to think of as the remaining free days of summer tick away, now is a good time to remind your college student to start saving book receipts and keep track of other college expenses before they start spending.

As part of the American Recovery and Reinvestment Act, more parents and students will qualify for the tax credit called the American Opportunity Credit for tax years 2009 and 2010, and their tax credits will increase from $1,800 under the Hope Credit, to $2,500 under the new plan.

"It is a very valuable benefit. It is really about putting more money in your pocket," said Bob Meighan, vice president of tax software giant TurboTax.

While the American Opportunity Credit is an extension and expansion of the Hope Credit, some taxpayers may need tax software to determine if other deductions or credits, such as the Lifelong Learning Credit, are better for them and "give the biggest bang for the buck," Meighan said.

Basically, anyone paying $4,000 or more a year for college qualifies for the maximum American Opportunity annual benefit of $2,500 per student.

"This presumably opens the door for kids who wouldn't be able to afford it," he said.

The new credit adds books and required course materials to the list of qualifying expenses, as well as tuition and fees, and allows the credit to be claimed for four post-secondary education years instead of two.

The full credit is for individuals with modified adjusted gross incomes of $80,000 or less, or $160,000 or less more married couples filing a joint return, according to the IRS. Partial credit is given to single filers making $80,000 to $90,000, and married couples making $160,000 to $180,000.

The tax break is also partially refundable, allowing lower income families with little or no tax liability to claim some of the credit.

Meighan points out that it's important to know the different between credits and deductions. The full amount of a tax credit, such as $2,500 for the American Opportunity Credit, can be deducted from the tax you'd pay. Deductions are taken out at your tax rate, typically 25% more for many people.

For example, $5,000 in college expenses being used as a tax deduction at a 25% tax rate would equal a $1,250 deduction.

For keeping track of tuition and fees paid at college, your student's college should send out a 1098T form listing such fees, Meighan said. Books won't be on there, so students should keep receipts. The tax credit is for the first $2,000 of qualifying expenses and 25% of the next $3,000. Interest paid on student loans are also deductible from taxes.

"None of us likes taxes," Meighan said. "None of us are experts on them. We tend to think there are breaks out there, but we're not sure."

If you're in college or have a child in college, the American Opportunity Credit is one tax credit you don't want to miss out on when filing taxes next year.

Aaron Crowe is a freelance journalist in the San Francisco Bay Area. Reach him at www.AaronCrowe.net

Increase your money and finance knowledge from home

Goal Setting

Want to succeed? Then you need goals!

View Course »

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

TurboTax Articles

Top 5 Reasons to Adjust Your W-4 Withholding

Common lifestyle changes, like getting a job or getting married, can change your tax liability. To avoid being caught off guard by an unexpected tax bill or huge tax refund, you'll need to adjust your withholdings on your paycheck.

Does Everyone Need to File an Income Tax Return?

Not everyone is required to file an income tax return each year. Generally, if your total income for the year doesn't exceed the standard deduction plus one exemption and you aren't a dependent to another taxpayer, then you don't need to file a federal tax return. The amount of income that you can earn before you are required to file a tax return also depends on the type of income, your age and your filing status.

How to Write Off Sales Taxes

The Internal Revenue Service (IRS) permits you to write off either your state and local income tax or sales taxes when itemizing your deductions. People who live in a state that does not impose income taxes often benefit most from this deduction. However, you might also be better off deducting sales taxes instead of income taxes if you make large purchases during the year and your total sales tax payments exceed those for state income tax. You can use either the actual sales taxes you paid or the IRS optional sales tax tables.

Add a Comment

*0 / 3000 Character Maximum