- 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

Building Credit from Scratch

Start building credit...now.

View Course »

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum