Take This Tax Credit, Quick!
Posted by Tax Man - 21/02/12 at 07:02 amFiling income tax returns is a nearly universal experience for Americans. The approach to this often stressful event varies from person to person. Some self-reliant people jump right in, using government provided forms, scratch paper and a calculator to complete their taxes by hand. Other people, who have the same self-reliance, but who find a little help to be comforting, use a tax software program to calculate their taxes. Others prefer to pass this task on to others, hiring an accountant or tax consultant to do their taxes for them. Whichever way you choose to do your taxes, it is important that you are aware of the many tax deductions you can legally take. Knowledge of these can save you hundreds of dollars.
Taxpayers are very aggressive about claiming exemptions on their returns, which totaled $842 billion in 2005 according to the IRS. That said, many taxpayers don’t claim all the exemptions to which they are legally entitled.
Become EducatedGuidelines based on what you earn allow you to claim the costs associated with pursuing an education as a tax credit. For instance, the Lifetime Learning and Hope credits permit you to get a credit for your tuition expenses. Becoming informed is always a smart move.
Considering the amount of people who were qualified for the Hope or Lifetime Learning subsidy as much as 25% did not take the benefit of it; based on a Government report that came out in 2005 which consisted of information from approximately 1.4 million tax returns. On a separate basis this was just about $160 for each person, but several of those exact people paid an estimate of $500 in extra taxes.
The Hope credit can get your college tuition partially paid for, depending on your income. As much as $1,650 for tuition or expenses related to tuition. This tax credit will not allow books, supplies or housing. The Lifetime Learning, as long as your college is approved, as much as $2000 towards expenses related to getting your schooling. Both of these programs are income-dependent. If you make too much money you will not be eligible at all, but the numbers are generous and based on your adjusted, modified gross income. For taxpayers who earn in excess of $47,000, for married-filing-jointly that figure would $94,000; making you still eligible but not for the full amount. You will be deemed completely ineligible if you earn $57,000 MAGI, and of course this number doubles for a married-filing-jointly household.
To get full benefits from the deductions for tuition and education related costs, some of which could be valued at as much as $4,000, you are not required to itemize. Your MAGI, if you are not married, is $65,000 or less (if you are married and filing jointly, you MAGI is $130,000). You can gain as much as $2,000 in deductions if your single-person income is between $65,000 and not higher than $80,000 ($130,000 and $160,000 is you are a couple). If your yearly earnings are in excess of these numbers, you will not be able to claim a college tax deduction.
In terms of tax credits and deductions, complexity is the rule of thumb, and this instance is no different. Tax filers are not allowed to claim both the credit along with the tuition deduction simultaneously. Thus, it is to your advantage to research which is greater; however credits are typically more valuable than deductions. It is crucial to research this since alternatives such as phase-outs might impact your case.
Ron Finkelstein is NOT a tax lawyer or aCPA. He is just a small business owner who has paid a lot of cash through the years to get familiar with tax tips like the difference between tax evasion and avoidance and the Top 5 overlooked exemptions
