I want to share some of the biggest ones available right now so you can see which one your family would qualify for and would benefit from the most when you prepare your taxes before the tax deadline.

American Opportunity Credit

Originally called the Hope Credit, the American Opportunity Credit allows those seeking a post-secondary education a tax credit of up to $2,500 per qualifying student. Qualified expenses include tuition and fees.

It has been expanded from covering 2 years to 4 years and now you can claim the expenses you paid for required course materials.

Lifetime Learning Credit

Like the American Opportunity Credit, the Lifetime Learning Credit allows you to receive credit for qualified education expenses you paid.

There is no limit to the number of years you can use the Lifetime Learning Credit, so if you’re taking classes to keep certified, this may be an option for you. Please be aware that you can not claim both the American Opportunity Credit AND Lifetime Learning Credit in the same year.

Deducting Tuition and Fees

If your income doesn’t allow you to take advantage of the American Opportunity or Lifetime Learning Credit, you may still be able to deduct some of your education expenses under the Tuition and Fees Deduction. This deduction can be worth up to $4,000, lowering your taxable income for the year.

To qualify for this deduction, please make sure that you’re claiming this for either yourself, your spouse, or your dependent.

Student Loan Interest Deduction

Just because you finished college doesn’t mean you have no tax breaks. If you have student loans, you may be able to deduct the interest you paid on the loans in 2012. If you meet the income requirements (modified adjusted gross income (MAGI) is less than $75,000 for single filers and less than $155,000 for those married filing jointly) then you may be able to deduct up to $2,500.

Even better, you don’t have to itemize your deductions to claim this on your taxes. Federal student loans would meet the criteria for deducting student loan interest, but a loan from a relative would not.

Thoughts on College and Tax Breaks

There are other tax deductions you may want to look into, including setting up tax advantage accounts for your younger children who won’t be attending college for some years. Using tax software like TurboTax can help you uncover what you’re entitled to and simplify filing your taxes so that you can keep more money in your pocket.

I’d love to hear from you about your family’s take on this topic. If someone in your family is going to college, which tax credits and deductions have you used?

Good News for your Valentine’s day and your tax refund!  The IRS announced today that they are now able to process tax returns that contain form 8863 with Education Credits beginning February 14^th.  Form 8863 is used to claim two higher education credits — the American Opportunity Tax Credit and the Lifetime Learning Credit.

Read the full IRS update

The IRS announced today that they will not be able to process tax returns with Form 8863 until mid-February.  This is a delay that will impact all tax preparation methods.

What is Form 8863?

Form 8863 is the form that is used to claim the American Opportunity Credit and the Lifetime Learning Credit.

American Opportunity Credit:  The American Opportunity Tax Credit is offered to students who pay qualified tuition (and aren’t claimed as dependents elsewhere), as well as to parents who pay expenses for their dependent students or themselves.  This tax credit allows you to claim up to $2,500 per student. The full credit is available for individuals with a MAGI(Modified Adjusted Gross Income) of $80,000 or less, $160,000 for married filing jointly. It is 40% refundable, meaning that you can get up to $1,000 back even if you don’t owe taxes.

Lifetime Learning Credit:  The Lifetime Learning Credit a perk available to you if you paid qualified college expenses.  Rather than limiting your ability to get tax credits for education expenses for the first four years of college, it’s possible to use the Lifetime Learning Credit to offset your expenses even in graduate or professional school. As long as the educational institution is qualified, undergraduate or beyond, you can qualify for up to $2,000 in tax credits for your expenses. It’s figured on 20% of your tuition and fees, up to the first $10,000. There is a phase out as you reach certain income levels. Parents can claim this for dependent students.

Can I still File?

Yes!!!  TurboTax is up to date with all the latest tax law changes, including changes to the American Opportunity Credit and Lifetime Learning Credit, so you can be confident that you are getting every deduction and credit you deserve on your tax return.  We recommend that you file now with TurboTax, so you will be at the front of the line for your refund when the IRS begins to process these returns. Returns will be submitted on a first in, first out basis.  For the fastest refund possible, make sure you e-file and select direct deposit.

Last year, the IRS issued  9 out of 10 refunds in 21 days or less  and expects the same results this year.  Once your return is accepted by the IRS, you can track the status of your return you can login in to your MyTurboTax account at anytime.

Who Should Take Education Tax Benefits

Is the Student a Dependent?

First of all, you need to determine if the student is a dependent. If a parent claims his or her student as a dependent, then that’s who gets to take the tax credit or education deduction. Whether it’s the American Opportunity Tax Credit, Lifetime Learning Credit, or the Tuition and Fees Deduction, only one person gets the tax advantage and it often comes down to whether the student is a dependent in the eyes of the IRS. If a student is a dependent on someone else’s tax return, the student doesn’t qualify for these tax breaks.

If a student isn’t claimed as a dependent, though, it’s possible for him or her to claim an education tax credit, or take the deduction.  One thing to keep in mind, each student cannot claim more than one tax break. So it’s one of the education credits or education deduction (not all of them).

Should the Student Take the Tax Credit or Deduction?

In some cases, it makes sense for the student to take the tax break. If the student is married, and no longer dependent on a parent for support, obviously that’s who should take the education tax break. Additionally, if the student makes enough money to owe taxes, it makes sense to reduce that tax bill as much as possible.

Most of the time, though, students don’t earn enough money to owe taxes. As a result, in many cases, it makes more sense for parents to claim their children as dependents and reap the benefits of the tax breaks. After all, parents have spent quite a lot to raise their children, and probably help pay for college. It’s only reasonable that they receive some sort of financial benefit in return – and a lower tax bill is one way to recoup a few of those costs.

Once you have made your decision about who will claim the education tax benefit, TurboTax will figure out which education tax credit or deduction you are eligible for when you prepare your taxes.

Education Expenses

If you are looking for a way to offset some of your education costs, the government offers some tax credits and deductions designed to help students and their parents. While these tax breaks won’t completely cover the cost college, they can reduce some of the pain involved.

American Opportunity Tax Credit

The American Opportunity Tax Credit is offered to students who pay qualified tuition (and aren’t claimed as dependents elsewhere), as well as to parents who pay expenses for their dependent students or themselves. Replacing the Hope Credit, the American Opportunity Credit offers some modified rules, which make it available to more students. Normally, the Hope Credit only allowed you to use it on the first two years of post-secondary education, and the modification allows for up to four years, as well as raising the income limits, and expanding qualified expenses.

The popular American Opportunity Credit was set to expire at the end of 2010. However, it has been extended through the end of 2012. This tax credit allows you to claim up to $2,500 per student. The full credit is available for individuals with a MAGI(Modified Adjusted Gross Income) of $80,000 or less, $160,000 for married filing jointly. It is 40% refundable, meaning that you can get up to $1,000 back even if you don’t owe taxes.

Lifetime Learning Credit

Rather than limiting your ability to get tax credits for education expenses for the first four years of college, it’s possible to use the Lifetime Learning Credit to offset your expenses even in graduate or professional school. As long as the educational institution is qualified, undergraduate or beyond, you can qualify for up to $2,000 in tax credits for your expenses. It’s figured on 20% of your tuition and fees, up to the first $10,000. There is a phase out as you reach certain income levels. Parents can claim this for dependent students.

Deduction for Tuition and Fees

Unlike the credits, which are dollar for dollar reductions in how much tax you owe, deductions reduce your income. You still receive a benefit; it just isn’t as pronounced. You can take a deduction for up to $4,000 spent on college tuition, and on related expenses.

Limitations to These Tax Breaks

Realize that there are limitations to the tax breaks you can take. If you claim the Tuition and Fees Deduction, you can’t take any of the credits. Additionally, you can’t claim the American Opportunity and Lifetime Learning credits for the same student in the same year. If you are a parent with multiple dependent students, you can spread these credits around a little bit to maximize your return.

Carefully consider your tax situation as you decide what is best. Remember that a credit is far more valuable than a deduction. For example, a $2,000 tax credit means a direct $2,000 reduction in tax liability. A deduction reduces your taxable income, so assuming you are in the 25% tax bracket, you would need a $8,000 deduction to get the same reduction in liability as a $2,000 tax credit.

Finally, don’t worry about figuring out which education credit or deduction to take.  TurboTax easily chooses the best option for you depending on your eligibility.

Education Credits and Deductions

• American Opportunity Tax Credit – (A modification to the Hope Credit) This tax credit is for up to $2500 per eligible student. It is available for couples filing joint with income up to $180,000 or $90,000 if single. 40% of the credit may be refundable, this means that if this tax credit is greater than your total tax for the year, you may get a check from the IRS for up to $1000 in addition to the tax you already paid.

Other requirements for this education tax credit include the fact that the student must be enrolled at least half time for at least one academic period during the tax year, and as of the end of 2011, the student must not have any felony drug convictions. Last, note that qualified expenses include not only tuition, but any enrollment fees, and required course material.

• Lifetime Learning Credit – The rules for this credit are a bit different from the American Opportunity Tax Credit. The credit is worth $2000 per return (not per student) and there is no limit to number of years it may be taken, so long as it’s in effect. The credit may be taken for couples with income up to $122,000 or single filers with income up to $61,000. All years of post secondary school qualify for the credit as do any courses to acquire or improve one’s job skills.

The student doesn’t need to be registered for any number of classes, even just one class qualifies for the credit. Besides the tuition, fees, and books, both “supplies and equipment” also qualify. Felony drug conviction is not a disqualifier for this credit. Last, the credit in not refundable. It can only offset your tax bill, not refund in excess of what you paid.

• The Student Loan Interest Deduction – for some time, personal interest (credit cards, car loans, etc) has not been deductible, but student loan interest might be. For those with modified adjusted gross income (MAGI) of $150,000 or less for joint filers, $75,000 if single, interest up to $2500 per year may be taken as a deduction. This is a deduction directly against your income, not subject to the need to exceed the standard deduction to get on schedule A. The interest deduction is available until the student loan is paid off, or until canceled by congress.

• Tuition and Fees Deduction – This deduction is against income, skipping the Schedule A, and helping to reduce your taxable income if this benefits you more than either the American Opportunity Tax Credit or the Lifetime Learning Credit. The deduction is available for Joint filers whose MAGI is less than $160,000, $80,000 if single. The eligible expenses include Tuition and fees, but specifically exclude room and board.

No discussion of tax savings for college should ignore the savings accounts targeted for college expenses. Let’s take a look at the two popular ones.

• Coverdell Education Savings Account – When first introduced, this account was called the “Education IRA” which was a bit of a misnomer as the account has nothing to do with retirement. On the other hand, it bears a striking resemblance to the Roth IRA. The deposits to the Coverdell are not tax deductible, but grow and are withdrawn tax free if used for the beneficiary’s qualified education expenses. The deposit limit is $2000 per year, and there is a limit of MAGI of $220,000, $110,000 if single to make the deposit. Any funds not used for qualified expenses must be withdrawn by the time the beneficiary turns 30. Distributions that don’t qualify for college expenses are subject to tax as well as a 10% penalty. This account may be combined with the credits and deductions above, but not for the same exact expenses.

• Qualified Tuition Program – Commonly known as the 529 plan, this account has no income restrictions at all for deposits. The account deposit limit is currently $300,000 which is well over the amount that would be needed for any 4 year degree. Practically speaking, it’s common to limit deposits to the $13,000 gift limit ($26,000 if both parents deposit.)

One is also permitted to gift ahead up to five years with no gift tax due and not tapping into the unified lifetime gift tax amount. Withdrawals for qualified expenses are withdrawn tax free, but as with the Coverdell, tax and penalty apply if withdrawn with no qualifying expense.

One choice is to take the remaining balance and change the beneficiary for the account. Any close family member up to first cousin is eligible for the transfer. For those who are trying to get money out of their estate, this opens up the possibility to move significant sums of money out of their name to set up 529 accounts for their extended family.

There is no age restriction, so no rush to transfer funds. You can wait until your new graduate has children of her own and make them the new beneficiaries to educate the next generation. This account may be combined with the credits and deductions above (including the Coverdell), but not for the same exact expenses.

Above all else, make sure you file. There is a minimum threshold of income where you aren’t required to file, but guess what? If you worked any job or received any pay check where taxes were withheld, you’re going to be getting a refund. But you can only get that refund if you take the time to file, so it’s certainly worth it even if you don’t think you made enough money to be required to file.

If you did any work last year there’s a good chance you will be receiving a W-2 or 1099 form from your employer. If you haven’t already received those forms by now it is probably a good idea to check up on the status. If you moved at some point during the year there could also be a situation where the mail didn’t get the forms to the right address or maybe were not forwarded properly. It is your responsibility to claim all income, so not receiving a form is not a valid excuse.

Another tricky situation for students who may work many different odd part-time jobs is keeping track of the income. One-time gigs or other non-regular income can easily be forgotten throughout the year so it pays to set up a spreadsheet or at least keep a folder at home with any check stubs or receipts.

Getting Your Deductions and Credits

Aside from organizing your income, it’s important to also look for all of the deductions you’re entitled to.  As a student you may qualify for a number of special deductions. This video breaks down a number of the most common deductions a student may qualify for.

Here is a breakdown of some of these credits:

• Hope Scholarship Credit - Gives you a tax credit for up to 100 percent of your first $1,000 in tuition and fees and up to 50 percent for the second $1,000. The maximum credit is $1,500 and it applies to the first two years of college only.
• Lifetime Learning Credit – Gives you a tax credit equal to 20 percent of your tuition and certain related expenses up to $10,000. The credit maximum is $2,000.
• Higher education expenses deduction – This deduction could be as much as $4,000 for those who meet earning guidelines.

Stay Organized for Next Year

If this is one of the first years you’ll be doing your taxes as a student it may be a little overwhelming, but things do get easier with preparation. You’ll be filing taxes for the rest of your life, so the sooner you can get organized and stay organized, the less painful the process will be. Rather than waiting until just a few months before taxes are due to get things together you can start today by keeping detailed records of your income, saving important receipts, and planning ahead to take advantage of various deductions and credits. Then when tax time rolls around next year you’ll be way ahead of the game.

The American Opportunity Credit (this replaced the Hope Credit) - offers a dollar for dollar reduction in your taxes up to $2500. This is the distinction between a credit and a tax deduction which only reduces your taxable income. Further, up to 40% ($1000) is refundable, which simply means you can get money back even if your tax bill for the year is zero. This credit has a phaseout, for married filing joint, the credit decreases from $160,000 modified adjusted gross income (MAGI) to $180,000 MAGI at which point, there is no credit. Consider this for a moment – this has the effect of taking this $160K-$180K income spread and making it an effective 40.5% bracket as $2500/$20000 is 12.5% and this range falls within the 28% normal tax bracket. For the single parent, the phaseout range is from $80,000 to $90,000 MAGI and the decisions regarding deductions or addition to income when in this range are even more sensitive.

The Lifetime Learning Credit – is also a credit, but only applicable to the extent taxes are otherwise owed, i.e. it’s not refundable, and limited to $2000 per year. It has lower phaseouts, $100,000-$120,000 for married, $50,000-$60,000 if single. While the American Opportunity Credit could only be used for the first four years of undergraduate study, the Lifetime Learning Credit can be applied for graduate learning as well as courses to acquire or improve job skills. Want more info? Watch a short video on the Lifetime Learning Credit.

Tuition and Fees – if neither of the above help you, you might be able to take a deduction off your income for tuition and fees. This option offers a $4000 deduction and you do not need to itemize to take advantage of it. Instead you fill out Form 8917 and submit with your 1040. The income limit for this deduction is $160,000 if married, $80,000 if single, but it’s not scaled as the credits are, there are thresholds, and your deduction allowed is $2000 or $4000 maximum, if any. Of course, if the tuition and fee total was lower, that’s the limit of this deduction.

Interest Loan Deduction – As with the tuition/fee deduction, interest on student loans can offset your taxable income without needing to itemize. Up to $2500 of interest may be deducted with a MAGI limit of $150,000 married, $75,000 single.

Important to note, the above are not cumulative, you should review the rules regarding each benefit and take the one most advantageous to you.

To help pay for higher education, you may need to tap your IRA. While early withdrawals are typically subject to a 10% penalty, withdrawals for this purpose are only taxed as income, no penalty. This is to pay for qualified education expenses for you, your spouse, your children or spouse’s children or any of your descendants.

If you or your children were in college in 2010, don’t miss the potential tax savings available to you. Leave of a comment if this article helped you find a deduction you may have not otherwise known about.

The choice isn’t always that easy, though, because the credit may be much different than the deduction amount. In this case, you’ll need to calculate how much in tax the deduction saves you compared to the credit. This provides a true apples-to-apples comparison. If you’re a student you have a number of opportunities for choosing between a credit or a deduction. Fortunately, tax software like TurboTax will help guide you to choosing the option that gives you the biggest refund.

The American Opportunity Tax Credit

As I wrote earlier this month, the American Opportunity Tax Credit is one of the most generous education benefits available, and by the time you’re reading this, will likely have been extended for another two years. The credit is worth up to $2,500 for qualified tuition and related expenses for each of the 4 years of college. Related expenses include expenses like books, supplies and equipment needed for a course of study if these items are required as a condition of enrollment or attendance.

Even if you don’t owe any tax, the American Opportunity Tax Credit can still provide you with a tax refund of up to $1,000. This is perfect for students who are not working, looking for a job, or are working part-time

The full credit is available to those whose “modified adjusted gross income” does not exceed $80,000 and $160,000 for single and joint filers, respectively. If your income exceeds these thresholds, your credit is reduced.

The Lifetime Learning Credit

The Lifetime Learning Credit helps parents and students pay for post-secondary education. Because the credit is not limited to the first four years of college or to full time students as the American Opportunity Credit is, the Lifetime Learning Credit is helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

This credit provides a benefit of up to $2,000 for tuition and related educational fees. If you qualify for more than one of the education credits or deductions, you can only claim one per year. No double dipping is allowed!

There is no limit to the number of years that a student can qualify for the Lifetime Learning Credit.

The credit, however, begins to phase out when income exceeds $50,000 (single) and $100,000 (joint). It is completed eliminated when income reaches $100,000 (single) and $120,000 (joint).

Tuition and Fees Deduction

The Tuition and Fees Deduction is taken as an adjustment to income. So even if you don’t itemize, you can benefit from this deduction. Because the income thresholds ($80,000 single and $$160,000 joint) for this deduction are higher than those for the Lifetime Learning Credit, this deduction may prove more valuable. The deduction is worth up to $4,000. The rules for the Tuition and Fees Deduction are very similar to those for the Lifetime Learning Credit.

Don’t forget that you can still qualify for all the above education benefits even if you paid your tuition and expenses with a student loan. Whether you paid the bills with your money or borrowed money, you can qualify for the benefits. The IRS offers worksheets to help you determine which benefit will help you the most, but tax software makes this process significantly easier. Enter your total tuition expenses paid during the year, and the software will choose the right option that gives you the biggest refund.

The American Opportunity Tax Credit changed the taxpayer-funded benefits given to students. The Hope Credit was formerly the popular method taxpayers claimed benefits for educational expenses, but the new stimulus law in 2009 greatly expanded the reach and depth of the existing credits.

The new credit allows taxpayers to receive a partial refund for money spent on tuition and some other education-related fees in 2009 and 2010. Unlike the Hope Credit, you can file to receive the new credit for up to $2,500 in expenses for each of the first four years of college education.

In fact, even if you owe less than $2,500 in total taxes for the year, as a student or a recently-graduated student might, the American Opportunity Tax Credit could provide you with a refund beyond your tax bill. This refundable portion of the tax credit is limited to 40% of what you would qualify for, so if you owe no taxes but had education expenses to claim, the most you could receive is $1,000.

Like many tax credits, you will only qualify if your adjusted gross income is below a certain level. For this credit, your maximum allowable credit begins to phase out with an income of $80,000 (or $160,000 for joint filers), and is reduced to zero for those with an income of $90,000 (or $180,000).

Your tax software makes the process of claiming the credit simple; just enter your education expenses, and the software will calculate if you will benefit most from the American Opportunity Tax Credit, the older Lifetime Learning Credit, or a deduction for education expenses. As the year comes to a close, make sure you have documented this year’s education-related expenses so when it comes time to file, the information you need will be available.

There are a number of tax benefits scheduled to expire this year, and many require that you take action soon if you want to see a higher refund or a lower tax bill next year. There is always a chance — in fact, I can guarantee — that Congress will make more changes to tax laws before it’s time to file in April 2011. For now, consider taking advantage of some of the credits and deductions that may not be around next year.

Homebuyer Tax Credit

One of the most popular benefits is the updated Homebuyer Tax Credit. If this is your first time buying a home, the government wants to give you up to $8,000. If you’ve lived in your current home for a long time but move to a new house, you could receive up to $6,500.

Unless extended by Congress, you must buy a qualifying house by the end of June this year. There are other restrictions as well, including income limitations. Make sure you’re familiar with all the rules before expecting the credit. Experts aren’t expecting this credit, already extended once, to be extended again. Time is running out, but the decision to buy a house should not be based solely on the existence of a tax credit.

Adoption Credit

Just a few weeks ago, Congress extended tax credits for adoption expenses to 2011, so there is now an extra year for taxpayers to receive some of the expanded benefits that have been put in place recently. Parents who adopt a child can receive a credit of up to $13,170 to help cover expenses spent during the adoption process.

American Opportunity Tax Credit

One new tax law of the 2009 economic stimulus was a new credit to help pay for college expenses such as tuition. The Hope Credit was expanded into the new American Opportunity Tax Credit, increasing the benefit students and parents can receive on their 2009 and 2010 taxes.

For any of the first four years of higher education, students or their parents (if the student is a dependent) can claim $2,500 in 2009 and 2010 to offset the costs. Up to $1,000 of this credit each year is refundable, which means you will receive the credit even if you have no other tax liability. This is a benefit for students who may not have much other income.

Unless Congress changes the rules again, the American Opportunity Tax Credit will expire at the end of the year. It will be superseded by the older Hope Credit, which provides a smaller benefit.

Making Work Pay Credit

Most people are receiving the Making Work Pay Credit without even knowing it. Rather than receiving this credit as part of your annual tax refund, most people have been receiving a small amount extra in their paychecks since April 2009 and will continue receiving this extra amount through the end of the year.

If you do not have regular tax withholding through your job or if you elected not to receive this extra money in your paycheck, you were able to claim the Making Work Pay Credit on your taxes and will be able to again in 2010. This is another tax rule enacted by the 2009 economic stimulus, and it will expire at the end of this year.

Low capital gains tax rates

Since 2008, investors have benefited from low tax rates on investments. For example, taxpayers in the 15% bracket can sell stocks with long-term capital gains without owing any taxes. In 2011, this tax will return to a rate of 10%. At all income levels, taxes on investments will increase. Currently, the dividends from some investments are taxed at these lower rates, but in 2011, dividends will be taxed at the same rates as ordinary income.

Stay tuned for more updates

The tax system is designed to be adjusted when necessary to react with current economic issues. Keep checking the TurboTax Blog for the latest updates when tax laws change, affecting taxpayers and their wallets.

Homebuyers Credit

Amid the real estate bust, the First-time Homebuyers Credit gets a lot of buzz because it is tied to stimulating the economy. Many taxpayers may not be aware that it has been extended and expanded to include repeat homebuyers.

If you are a first-time homebuyer, the maximum credit amount you can receive is $8,000. You fit the bill if you have not owned a primary residence during the three years up to the date of purchase. In addition, there are income restrictions. The credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For Colin Kelly, a first-time buyer who was profiled in the New York Times, the credit means the difference between living with furniture found on the street and a real adult home. Kelly used the proceeds from his $8,000 credit to furnish his New York City apartment.

The long-time resident credit of up to $6,500 is much more obscure. To qualify, buyers must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

Keep in mind that there is lots of documentation involved if you want to receive these credits, which is why the IRS doesn’t let you e-file.

Energy Efficient Credits

It pays to be green. In fact, greening your home offers some great tax breaks.  Did you replace any windows?  Did you install a new air-conditioning system? Taxpayers who made energy-efficient improvements to their home may get a credit worth 30% of the cost, typically up to %1,500. Spend $1,000 on a draft-free door, for example, and receive $300 off your tax bill. Solar and geothermal improvements are even more lucrative. For a detailed breakdown of energy-related credits, check out this EnergyStar fact sheet.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) was designed to put more money into the pockets of working taxpayers. Yet millions of lower-income people miss out on reaping its benefits every year. In 2008, 24 million taxpayers claimed more than $48 billion in credits, which works out to an average of $2,000 per filer. However, 25% of taxpayers who are eligible for EITC fail to claim it, according to the IRS.

To get the credit, your income cannot exceed $13,440 if you are single and have no children. (The income threshold is $18,440 if you are married and filing with your spouse). If you fit the bill, you are eligible for a $457 credit.

The credit becomes more valuable if you have a larger family. It increases from $3,043 (one child) to $5,657 (three kids or more), But you cannot earn more than $43,279 if you are single and $48,279 if married and filing jointly with three or more qualifying kids.

Unemployment and Job Search Deductions

Unfortunately, many people lost jobs over the past year. The good news is that the first $2,400 of unemployment benefits received in 2009 are tax free.  Also, job search expenses could be tax-deductible for taxpayers who itemize. What kind of job-hunting items apply? Eligible expenses include the cost to print and mail your resume, fees paid to an employment or outplacement agency, travel costs associated with the job search.

But there’s a catch: Job-hunting costs are part of miscellaneous expenses reported on Schedule A of Form 1040. Only miscellaneous expenses that exceed 2% of your adjusted gross income are deductible.

Education Expenses

There are a slew of credits available for taxpayers in college, the trick is knowing which is the best one to take, along with knowing what you can deduct.

The American Opportunity Credit is an expansion of the Hope credit, and it is tied to the economic stimulus package. The income cap is higher, and the credit can be claimed for tuition and certain fees you pay for higher education in 2009 and 2010. It’s up worth up to $2,500 for qualified tuition and expenses. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two.

If you have brushed up on skills to help you get ahead in your career, use the Lifetime Learning Credit. It provides a credit of up to $2,000 to cover qualified education expenses, such as job training. And it is applicable for you, your spouse or your offspring. The credit is based on your income—joint filers can’t claim it if their income exceeds $120,000.

If you want to delve into the nuances of education-related credits, this Q&A from the IRS does a terrific job of explaining the differences.

Finally, for some other overlooked deductions, check out this list from the TurboTax Blog.  And remember, TurboTax makes it easy to get all the deductions and credits you deserve.

Between the dismal economy and just business as usual, the year 2009 was filled with major life changes for many people. Now, as we approach Valentine’s Day, many more can expect another major life change in the near future–marriage.  An estimated 2.2 million Americans get married each year, and approximately 10% of those marriage proposals happen on Valentine’s Day.

Valentine’s Day also happens to fall during tax season–and it’s important to know that most of life’s big milestones, such as having a baby or buying a home, come with lovely (forgive the pun!) implications. Here are some timely tax tips to plan for these life-altering events which may have occurred in 2009:

You Got Hitched in 2009

Americans are waiting longer to get married. The median age for a man and woman’s first marriage was 27.6 and 25.9 years, respectively, in 2008. (In 1960, men typically got hitched at age 22.8 while women were 20.3.) There are plenty of social implications for delaying marriage, but waiting longer to tie the knot means that you may be more established in your financial life, too. And that can make filing your taxes more complicated. Yet while all married couples can file their taxes together or separately, most save thousands of dollars by filing jointly. That’s because filing separately disqualifies you for some of the most significant tax credits and deductions which include:

• The Earned Income Credit

The Earned Income Credit is responsible for more than $49 billion in tax credits, so you don’t want to miss out. Congress originally approved the tax credit legislation in 1975 as a way to offset Social Security taxes and to provide an incentive for workers. For 2009, you’ll need an AGI (adjusted gross income) of $70,950 if married filing jointly to qualify.

• Child and Dependent Care deductions

The typical American family with two young children spends an average of $14,000 a year on child care, which is almost a quarter of its annual income, according to the U.S. Census bureau. The good news is that some of those childcare costs are tax-deductible; the bad news is that figuring out if you qualify can be extremely tricky. (We have a full-time caregiver for our son, so I know firsthand that you will need to jump though several hoops to get these deductions.) And that’s why TurboTax is an excellent resource for sorting out the complex paperwork to get you what you are owed.

• American Opportunity and Lifetime Learning credits

For 2009, there are several tax credits available to help you offset the costs of higher education by reducing the amount of your income tax, depending on your income. The Lifetime Learning Credit can be used for qualified education expenses for you, your spouse or your offspring while the American Opportunity Credit can be claimed for tuition and certain fees you pay for higher education in 2009 and 2010. For the tax year, you may be able to claim a Lifetime Learning Credit of up to $2,000 (and the credit is $4,000 if you are a student in a Midwestern disaster area). The American Opportunity Credit is worth up to $2,500 for qualified tuition and expenses.

• Student loan interest deduction

The interest you pay on your student loans may also be tax-deductible.For 2009, the tax deduction is phased out if your filing status is married filing jointly and your modified adjusted gross income is between $120,000 and $150,000. Keep in mind that you aren’t eligible for this deduction if your modified AGI is $150,000 or more.

You Had a Baby in 2009

If your bundle of joy lives with you and does not provide more than half of his or her own support, you can claim that kid as your dependent. Additionally, there are other credits your child may qualify for:

• Child Tax Credit

This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent.

• Earned Income Credit

The Earned Income Credit is pretty hefty. You get a credit of $5,657 with three or more qualifying children; $5,028 with two qualifying children; and $3,043 with one qualifying child.

You Bought A Home in 2009

If you’re the primary borrower on your home loan and you make the loan payments, you qualify for a mortgage interest deduction. All you need to take the deduction is your mortgage statements. Other key deductions include property taxes, private mortgage insurance payments, purchase points, home improvements for medical reasons and mortgage interest on a second home.

If you are a first-time homebuyer, you are in luck, too. Thanks the stimulus plan, the maximum credit amount is $8,000 for a first-time homebuyer –– which is a buyer who has not owned a primary residence during the three years up to the date of purchase. There’s also a long-time resident credit of up to $6,500 to others who do not qualify. Keep in mind those buyers must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

Remember that you can’t e-file if you take this credit.  You need to paper file and provide documentation.

You Changed Jobs in 2009

Getting a raise, starting a new job, or retiring from an old one can also have a dramatic impact on your taxes. Here are few final tax-saving tips:

• Keep receipts for job hunting and work-related moving expenses. They are deductible!

• When you rollover your 401(k), have it directly deposited into your new account.

• If you’ll owe taxes on your Social Security benefits, request voluntary withholding to minimize the tax bite.

• To find out if your tax will rate will change with a new salary, compare your last year’s tax bracket to this year’s. Your tax bracket is the rate at which your last dollar of income is taxed. It’s higher than your actual tax rate. But it will give you a good idea of how much of your income will go to Uncle Sam.

As you spend Valentine’s Day with your significant other, make sure you raise a glass of champagne to celebrate love and its many tax benefits!

Flickr: DeaPeaJay

Tax breaks for college students and their families are bigger and better this fall than in 2008, thanks to the Stimulus Package passed in early 2009.

The stimulus not only increased the amount of a key tax credit for college expenses, it made the credit available to more students in 2009 and 2010.

What used to be called the Hope Credit is now the American Opportunity Tax Credit. A tax credit reduces your taxes dollar for dollar.

The Hope Credit was worth $1,800 annually, but only students in the first and second years of college qualified for it.

TheAmerican Opportunity Credit is a much heftier $2,500 – and it can be claimed by students during all four years of college. The new credit was also expanded to include more middle- and upper-middle income families.

For some lower-income taxpayers, the credit is also “refundable.” That means that if the credit is worth more than a taxpayer owes for the year, that taxpayer you could get up to 40% of the credit, or $1,000 as a tax refund.

Graduate students and other, post-secondary students who don’t qualify for the Opportunity Credit might still benefit from the Lifetime Learning Credit or for the tuition deduction.

You can read more about the new Opportunity Credit on TurboTax.com.To learn about all the different tax breaks for higher education, visit the new IRS Information Center on Tax Benefits for Education.