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1. Pay off Debt
2. Funeral expense
3. Replace income
4. Estate Preservation
5. Business Continuation
2. Funeral expense
3. Replace income
4. Estate Preservation
5. Business Continuation
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Education Tax Credits and Deductions
For parents and students trying to manage college bills and student loan payments, the federal government offers
education-related tax benefits. The requirements for each are different, so here's what you need to know.
Hope credit (American Opportunity credit)
The Hope credit (renamed the American Opportunity credit for 2009 and 2010) is a tax credit available for the first four years
of a student's undergraduate education, provided the student is attending school at least half-time in a program leading to a
degree or certificate. The credit is worth up to $2,500 in 2010 (it's calculated as 100% of the first $2,000 of qualified expenses
plus 25% of the next $2,000 of expenses). The credit must be taken for the tax year that the expenses are paid, and parents
must claim their child as a dependent on their tax return to take the credit.
To be eligible for the credit, your income must fall below certain limits. In 2010, a full credit is
available to single filers with a modified adjusted gross income (MAGI) below $80,000 and
joint filers with a MAGI below $160,000. A partial credit is available to single filers with a MAGI
between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000.
One nice feature of the American Opportunity credit is that it's calculated per student, not per
tax return. So parents with two (or more) qualifying children in a given year can claim a
separate credit for each child (assuming income limits are met).
The mechanics of claiming the credit are relatively easy. If you paid tuition and related expenses to an eligible educational
institution during the year, the college generally must send you a Form 1098-T by February 1 of the following year. You then
file Form 8863 with your federal tax return to claim the credit.
Lifetime Learning credit
The Lifetime Learning credit is another education tax credit, but it has a broader reach than the American Opportunity credit.
As the name implies, the Lifetime Learning credit is available for college or graduate courses taken throughout your lifetime
(the student can be you, your spouse, or your dependents), even if those courses are taken on a less than half-time basis
and don't lead to a formal degree. However, this credit can't be taken in the same year as the American Opportunity credit on
behalf of the same student.
The Lifetime Learning credit is worth up to $2,000 in 2010 (it's calculated as 20% of the first $10,000 of qualified expenses).
The Lifetime Learning credit must be taken for the same year that expenses are paid, and you must file Form 8863 with your
federal tax return to claim the credit. In 2010, a full credit is available to single filers with a MAGI below $50,000 and joint filers
with a MAGI below $100,000. A partial credit is available to single filers with a MAGI between $50,000 and $60,000 and joint
filers with a MAGI between $100,000 and $120,000.
Unlike the American Opportunity credit, the Lifetime Learning credit is limited to $2,000 per tax return per year, even if more
than one person in your household qualifies independently in a given year.
If you have more than one family member attending college or taking courses at the same time, you'll need to decide which
credit to take.
Example: Joe and Ann have a daughter, Mary, a college freshman, and a son, Ben, a college sophomore, who are attending
school full-time. In addition, Joe is enrolled at a local college and is taking two graduate courses related to his job. How should
the family maximize their tax credits?
As a college freshman and sophomore attending school at least half-time, Mary and Ben each qualify for the American
Opportunity credit. Plus, Mary, Ben, and Joe each qualify for the Lifetime Learning credit. Since the American Opportunity
credit isn't limited to one per tax return, Joe and Ann should claim these credits on behalf of Mary and Ben (for a total of
$5,000) and a Lifetime Learning credit on behalf of Joe (for $2,000). Joe and Ann can claim both the American Opportunity
credit and the Lifetime Learning credit in the same year because each credit is taken on behalf of a different qualified student.
Student loan interest deduction
The federal government also offers a deduction for student loan interest that allows borrowers to deduct up to $2,500 worth of
interest paid each year on qualified student loans. Generally, federal student loans, private bank loans, college loans, and
state loans are eligible. However, the debt must have been incurred while the student was attending school on at least a
half-time basis in a program leading to a degree, certificate, or other recognized educational credential. So loans obtained to
take courses that do not lead to a degree or other educational credential are not eligible for this deduction.
Your ability to take the student loan interest deduction depends on your income. For 2010, to take the full $2,500 deduction
(assuming that much interest is paid during the year) single filers must have a MAGI of $60,000 or less and joint filers
$120,000 or less. A partial deduction is available for single filers with a MAGI between $60,000 and $75,000 and joint filers
with a MAGI between $120,000 and $150,000.
Also, to be eligible for the deduction, an individual must have the primary obligation to pay the loan and must pay the interest
during the tax year. The deduction may not be claimed by someone who can be claimed as a dependent on another
taxpayer's return. Borrowers can take the student loan interest deduction in the same year as the American Opportunity credit
or Lifetime Learning credit, provided they qualify for each independently.
Deduction for qualified higher education expenses
This deduction--for up to $4,000 of out-of-pocket qualified higher education expenses that you pay during the year--is not
available in 2010. It was, however, available in 2009.
For more information, see IRS Publication 970, Tax Benefits for Education at www.IRS.gov.
The Insurance Suite offers a Complimentary College Funding Review, where we will sit down with you and find additional
funding solutions for your college bound children. For more information, fill out the form below.
For parents and students trying to manage college bills and student loan payments, the federal government offers
education-related tax benefits. The requirements for each are different, so here's what you need to know.
Hope credit (American Opportunity credit)
The Hope credit (renamed the American Opportunity credit for 2009 and 2010) is a tax credit available for the first four years
of a student's undergraduate education, provided the student is attending school at least half-time in a program leading to a
degree or certificate. The credit is worth up to $2,500 in 2010 (it's calculated as 100% of the first $2,000 of qualified expenses
plus 25% of the next $2,000 of expenses). The credit must be taken for the tax year that the expenses are paid, and parents
must claim their child as a dependent on their tax return to take the credit.
To be eligible for the credit, your income must fall below certain limits. In 2010, a full credit is
available to single filers with a modified adjusted gross income (MAGI) below $80,000 and
joint filers with a MAGI below $160,000. A partial credit is available to single filers with a MAGI
between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000.
One nice feature of the American Opportunity credit is that it's calculated per student, not per
tax return. So parents with two (or more) qualifying children in a given year can claim a
separate credit for each child (assuming income limits are met).
The mechanics of claiming the credit are relatively easy. If you paid tuition and related expenses to an eligible educational
institution during the year, the college generally must send you a Form 1098-T by February 1 of the following year. You then
file Form 8863 with your federal tax return to claim the credit.
Lifetime Learning credit
The Lifetime Learning credit is another education tax credit, but it has a broader reach than the American Opportunity credit.
As the name implies, the Lifetime Learning credit is available for college or graduate courses taken throughout your lifetime
(the student can be you, your spouse, or your dependents), even if those courses are taken on a less than half-time basis
and don't lead to a formal degree. However, this credit can't be taken in the same year as the American Opportunity credit on
behalf of the same student.
The Lifetime Learning credit is worth up to $2,000 in 2010 (it's calculated as 20% of the first $10,000 of qualified expenses).
The Lifetime Learning credit must be taken for the same year that expenses are paid, and you must file Form 8863 with your
federal tax return to claim the credit. In 2010, a full credit is available to single filers with a MAGI below $50,000 and joint filers
with a MAGI below $100,000. A partial credit is available to single filers with a MAGI between $50,000 and $60,000 and joint
filers with a MAGI between $100,000 and $120,000.
Unlike the American Opportunity credit, the Lifetime Learning credit is limited to $2,000 per tax return per year, even if more
than one person in your household qualifies independently in a given year.
If you have more than one family member attending college or taking courses at the same time, you'll need to decide which
credit to take.
Example: Joe and Ann have a daughter, Mary, a college freshman, and a son, Ben, a college sophomore, who are attending
school full-time. In addition, Joe is enrolled at a local college and is taking two graduate courses related to his job. How should
the family maximize their tax credits?
As a college freshman and sophomore attending school at least half-time, Mary and Ben each qualify for the American
Opportunity credit. Plus, Mary, Ben, and Joe each qualify for the Lifetime Learning credit. Since the American Opportunity
credit isn't limited to one per tax return, Joe and Ann should claim these credits on behalf of Mary and Ben (for a total of
$5,000) and a Lifetime Learning credit on behalf of Joe (for $2,000). Joe and Ann can claim both the American Opportunity
credit and the Lifetime Learning credit in the same year because each credit is taken on behalf of a different qualified student.
Student loan interest deduction
The federal government also offers a deduction for student loan interest that allows borrowers to deduct up to $2,500 worth of
interest paid each year on qualified student loans. Generally, federal student loans, private bank loans, college loans, and
state loans are eligible. However, the debt must have been incurred while the student was attending school on at least a
half-time basis in a program leading to a degree, certificate, or other recognized educational credential. So loans obtained to
take courses that do not lead to a degree or other educational credential are not eligible for this deduction.
Your ability to take the student loan interest deduction depends on your income. For 2010, to take the full $2,500 deduction
(assuming that much interest is paid during the year) single filers must have a MAGI of $60,000 or less and joint filers
$120,000 or less. A partial deduction is available for single filers with a MAGI between $60,000 and $75,000 and joint filers
with a MAGI between $120,000 and $150,000.
Also, to be eligible for the deduction, an individual must have the primary obligation to pay the loan and must pay the interest
during the tax year. The deduction may not be claimed by someone who can be claimed as a dependent on another
taxpayer's return. Borrowers can take the student loan interest deduction in the same year as the American Opportunity credit
or Lifetime Learning credit, provided they qualify for each independently.
Deduction for qualified higher education expenses
This deduction--for up to $4,000 of out-of-pocket qualified higher education expenses that you pay during the year--is not
available in 2010. It was, however, available in 2009.
For more information, see IRS Publication 970, Tax Benefits for Education at www.IRS.gov.
The Insurance Suite offers a Complimentary College Funding Review, where we will sit down with you and find additional
funding solutions for your college bound children. For more information, fill out the form below.
| College Tuition Costs Are Climbing! Lower Insurance Premiums = Additional College Funds Get a Free Comparison Quote From The Insurance Suite Today!!! |
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