January is the month when taxpayers begin to assemble all of the forms, publications, and receipts related to the 2009 tax year. By early February you should have your W-2 and 1099 forms in hand as well as the latest copy of your tax preparation software or an appointment scheduled with your tax preparer.
Reduce Your Tax Burden
Another tax year to check off! But before you get started, are there qualifying college expenses and deductions you can take?
For families with a college student there are certain higher education tax deductions and credits that can be taken if qualifying college expenses were declared in 2009. These deductions and credits can reduce your overall tax burden, something of importance to every taxpayer.
“Congress has increased the amount of and expanded the eligibility for a federal tax credit to help families that paid tuition and other college costs,” said Carl C. Dalstrom, USA Funds president and CEO. “Taxpayers who paid college expenses last year should take advantage of the available higher education credits and deductions when they file their income tax returns.”
Among the changes in higher education tax benefits are the following items:
American Opportunity Tax Credit. This tax credit is a renamed and expanded version of the Hope tax credit. The maximum credit has been increased to $2,500 from $1,800. The credit now covers qualified higher education expenses during the first four years of study toward a degree. The Hope credit covered only the first two years of study. Taxpayers who paid college expenses for the fifth and subsequent years of higher education still may qualify for a different tax credit, the Lifetime Learning Credit, which offers a credit of up to $2,000 for costs paid for any year of education beyond high school. Income limits to qualify for the American Opportunity Tax Credit are higher than the limits had been for the Hope credit: Single taxpayers with modified adjusted gross incomes of less than $90,000, and married taxpayers filing joint returns reporting modified adjusted gross incomes of less than $180,000, now may qualify for at least a partial credit. Because a portion of the credit is refundable, taxpayers with no federal income tax liability may qualify to receive up to $1,000 under this tax credit.
Student loan interest deduction. The maximum income limits to qualify for the deduction have been increased for 2009 tax returns. Single tax-filers with modified adjusted gross incomes of less than $75,000, and married taxpayers filing jointly with modified adjusted gross incomes of less than $150,000, may qualify for at least a partial deduction. Taxpayers may deduct from their taxable income up to $2,500 in qualified interest that they paid on student loans during the tax year.
529 college savings plans. Families that tapped qualified tuition programs, commonly known as 529 savings plans, to purchase computer hardware and software, as well as Internet access, during their students’ enrollment now qualify to exclude those amounts from their taxable income. Previously, only tuition, fees, books, supplies, equipment, and room and board qualified as tax-free 529 plan withdrawals.
Tax Benefit Resources
To help make families aware of these higher education tax benefits, USA Funds offers a summary of the provisions on its Web site at www.usafunds.org/borrowers/resources/tax_benefits.htm.
USA Funds advises taxpayers to consult a qualified tax adviser or the Internal Revenue Service to determine their eligibility for any of these tax benefits.
So if you believe you may be eligible to take certain deductions be on the look out as you use your tax preparation software for these deductions or inform your tax preparer of the same.
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