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?

Embed the above image on your site using the code below:<a href="<a href="http://images.blog.turbotax.intuit.com/swf/TurboTax-FAFSAinfographic.png"><img" rel="nofollow" target="_blank">http://images.blog.turbotax.intuit.com/swf/TurboTax-FAFSAinfographic.png"><img</a> src="<a href="http://images.blog.turbotax.intuit.com/swf/TurboTax-FAFSAinfographic.png&quot" rel="nofollow" target="_blank">http://images.blog.turbotax.intuit.com/swf/TurboTax-FAFSAinfographic.png&quot</a>; alt="TurboTax-FAFSAinfographic" title="TurboTax-FAFSAinfographic" width="580" height="2068" class="alignnone size-full wp-image-8428" /></a><br/>Free Tax Filing, Efile Taxes, Income Tax Returns - <a href="<a href="http://www.turbotax.com">TurboTax.com</a&gt" rel="nofollow" target="_blank">http://www.turbotax.com">TurboTax.com</a&gt</a>;

As taxpayers, we are always looking for ways to maximize our income. The Internal Revenue Service (IRS) offers certain tax credits to help us with our expenses and savings surrounding two financial issues that are of great importance to our future: our education and retirement. These are some of the credits for which you may qualify and be one step closer to your financial success.

Education Tax Credits

If you, your spouse or one of your dependents paid for higher education or post-secondary expenses in 2012, you may qualify for one of these education tax credits: The American Opportunity Tax Credit or the Lifetime Learning Credit. These credits are available to help you pay for tuition or other related school expenses, as long as you didn’t pay for them with tax-exempt scholarships. TurboTax will help you choose the credit that helps you keep more of your money, but you cannot claim both of them.

The American Opportunity Tax Credit covers expenses during the first four years of post-secondary education. To qualify, the student must be studying towards a degree; enrolled in school at least part-time during the academic period; and not have been convicted of any drug-related offense.

The Lifetime Learning Credit is not as generous as the American Opportunity Tax Credit, but it is available for students who paid for any expenses related to qualified post-secondary education, whether it was a four-year program or not. Similar to the American Opportunity Tax Credit, this credit can be claimed for tuition and enrollment expenses. You can also claim expenses for required books or equipment if you paid the school directly for them.

Some expenses that are not eligible for these credits include expenses related to housing, insurance, transportation, medical expenses and others that are not directly related to the completion of any type of post-secondary studies. TurboTax can help you determine which credit will provide you with more benefits and which expenses you can include when claiming the credit.

Saver’s Credit

If you have  followed the wise advice of saving for your retirement and you have low or moderate income, the IRS could reward you with up to $1,000 ($2,000 if married and filing jointly) to help you save for your future. Contributions to investment accounts for retirement such as an IRA, Roth IRA, 401 401(k), 403(b), 457(b) and other voluntary contributions could help you meet the requirements to receive this credit, including:

• You must be at least 18 years old
• You cannot be claimed as a dependent by someone else
• You cannot be a full-time student
• You can claim up to 10%, 20% or 50% for the first $2,000 you saved
• The credit amount depends on your adjusted gross income, which cannot be more than:
  • $28,750 if you file as single, married filing separately, or widowed
  • $43,125 if you file as the head of a family
  • $57,500 if you file as married filing jointly

If you contributed any amount towards your retirement or have education expenses in 2012, TurboTax will help you determine if you qualify for these tax credits by asking you a series of simple questions while filing your taxes so that you can keep more of your hard-earned money.

The IRS announced today that on February 14, they will begin processing tax returns that contain form 8863 with Education Credits.  Form 8863 is used to claim two higher education credits — the American Opportunity Tax Credit and the Lifetime Learning Credit.

They also announced that on February 10, they will begin processing tax returns that contain Form 4562, Depreciation and Amortization.

The IRS will begin accepting all other tax forms that are not yet being accepted due to late tax law changes the first week in March.  We will update the blog with the exact date as soon as the IRS announces what date that will be. Not sure if your file one of these forms?  Here is the full list of the forms that will be accepted the first week of March.

TurboTax is up to date with all tax law changes, so you can file today and feel confident that your will get every deduction and credit you deserve.  And remember, if you have any questions, only TurboTax lets you talk to CPAs, enrolled agents and tax attorneys as often as you like while you prepare your return, free.

You can read the IRS full announcement here.

Teacher’s Educator Expense Deduction

As you gather together your paperwork for 2011, don’t forget the educator expense tax deduction. It’s available to teachers, instructors, counselors, principals and aides for grades K-12 who work at least 900 hours during the school year. (Parents who home school their children are out of luck, since the costs for home schooling aren’t eligible for this deduction.)

If you qualify, you can claim up to $250 of your out-of-pocket expenses for classroom supplies, materials, books, computer equipment, software, other equipment, and supplementary materials, as long as you didn’t receive reimbursement. You don’t have to itemize your deductions either.

If you and your spouse are both teachers, you can double up and each claim the deduction for a combined deduction of $500. Of course, you can’t each claim a deduction for the same costs, so be sure to split the purchases between you for maximum tax savings.

Now for the fine print, which affects just a few people:

• If you teach courses in health and physical education, your expenses for those courses must be related to athletics.
• The educator expenses have to exceed any interest on US savings bonds that were used to pay education expenses and excluded from income.
• The expenses must exceed any tax-free distributions from a 529 plan or other tuition program that you excluded from income, including any tax-free withdrawals from your Coverdell Education Savings Account.

Congress decided a few years ago to give teachers a break temporarily. Though Congress extended the deduction each time it was set to expire, it wasn’t extended this year, so as things stand now there is no educator deduction for 2012. But it wouldn’t hurt to hang onto your receipts for 2012 just in case Congress acts to reinstate it later this year.

Interactive by Column Five

Embed the above image on your site using the code below:<a href="<a href="http://intuitturbotax.files.wordpress.com/2012/10/gov-school-spending11.png"><img" rel="nofollow" target="_blank">http://intuitturbotax.files.wordpress.com/2012/10/gov-school-spending11.png"><img</a> src="<a href="http://intuitturbotax.files.wordpress.com/2012/10/gov-school-spending11.png&quot" rel="nofollow" target="_blank">http://intuitturbotax.files.wordpress.com/2012/10/gov-school-spending11.png&quot</a>; alt="gov-school-spending" title="gov-school-spending" width="580" height="1332" class="alignnone size-full wp-image-8428" /></a><br/>Free Tax Filing, Efile Taxes, Income Tax Returns - <a href="<a href="http://www.turbotax.com">TurboTax.com</a&gt" rel="nofollow" target="_blank">http://www.turbotax.com">TurboTax.com</a&gt</a>;

Student Loan

Luckily, most taxpayers who make student loan payments on a qualified student loan will get a little relief. A qualified student loan is a loan you took out solely to pay higher education.

In most cases, the interest portion of your student loan payments during the tax year is tax deductible. Your deduction is limited to interest up to $2,500 or the amount of interest you actually paid whichever is less.  As with most tax credits and deductions, there are limits in place.

You can deduct student loan interest if:

• You paid interest on a qualified student loan in the tax year
• You are legally obligated to pay interest on a qualified student loan
• Your filing status is not married filing separately
• You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s tax return
• You are a single filer with income under $60,000, however your full tax deduction phases out between $60,000 and $75,000. Income limits are double for joint filers. If your income falls above those limits, it is not deductible at all.

The other good news regarding the student loan interest deduction is that you do not need to itemize deductions in order to claim it. This makes sense considering many recent college graduates are not itemizing deductions.

If you paid more than $600 in interest to a single lender during the year you should receive a 1098-E form showing how much interest you paid for the year. If you made student loan payments but did not receive a 1098-E, you are still entitled to claim the interest deduction, but you may need to call the lender or pull up your records online.

When filing your taxes, don’t forget about this tax deduction and remember that TurboTax will calculate the deduction for you if you are eligible.

Off to college

But take heart – you’ve accomplished so much in the last eighteen years. You’ve raised a child from infancy to adulthood, prepared them for life, and are now sending them to college where they will continue to learn, grow, and become a successful part of society.

Congratulations! It’s time to celebrate. But it’s also a great time to examine your budget and find ways to lower your expenses while your children are off at college. The obvious advice is to downsize your house and vehicles. But here’s some more advice to really lower those monthly expenses.

Eating In / Eating Out

One of the best places for anyone to start finding ways to save money and lower their cost-of-living expenses is to examine and adjust how much they spend on food – eating at home and eating out.

The same is even more true for parents whose kids have left for college.

Make an effort to reduce the amount of food you buy to stock your shelves and fridge at home. Remember, that ‘bottomless pit’ you called your teenager isn’t around to empty the cupboard anymore. If you buy less food, you’ll end up saving money up front and you’ll end up throwing less out.

Not only does having your child away at college mean that there’s one less entree to order at your favorite restaurant, but that’s one less person having input on ‘what’s for dinner’. Many families these days eat out because their kids have grown accustomed to it.

Ask yourself if you really need to go out to eat tonight.

Insurance

Your child will need health insurance and, if they brought a vehicle to college, car insurance. The key phrase here is – comparison shop.

Sending your kids off to college is a great time to compare coverages of health insurance and car insurance, making sure that you’re getting the best price for you and your kids.

More than likely, your college student will stay on your health insurance while they remain a full-time student. But it wouldn’t hurt to check out any health coverage offered by the university.

And if your student isn’t taking a car to college, ask your insurance agent about a premium discount while they’re away from the steering wheel.

Lowering Your Taxes

Okay, so lowering your taxes isn’t exactly an active, everyday way to decrease your expenses. But, finding the best tools to get your taxes as low as possible can save you some big bucks each April.

First, you need to decide which will be more valuable – claiming your student as a dependent on your tax return or allowing them to file their own return. For example, your student may want to file on their own if they are expecting a few hundred dollars from the IRS. But as parents, you might be able to save a few thousand by claiming your child as a dependent.

Whatever strategy you choose, make sure you examine all of the available college tax credits and deductions that are made available to those seeking higher education.

Cable, Internet, and Entertainment

Do you watch as much television as your kids? Do you download as much music or as many movies from the internet? Are you playing online video games like your teenager?

If the answer is no, check out reducing the speed of your internet (internet providers love hiking up the price on faster connections), think about scaling back your cable or satellite TV channel lineup, and stop paying for online gaming while your kids are supposed to be earning a degree (yes parents, you don’t just buy a video game anymore, now they come with monthly costs too).

Saying ‘No’ to Adult Children

Let’s face it, most parents will always want to help out their children, no matter what their age or predicament. But there’s a fine line between helping your grown children and inviting them back into your home to continue raising them into their mid-to-late 20s or even 30s.

One of the best ways to reduce (or guard against potentially increasing) your expenses is to help your children understand that you’ll always be there for them, but that you expect them to begin living their lives as responsible, independent adults.

Interactive by Column Five

Have you used any of these saving methods?  Which ones?  Don’t forget some of your college expenses may be tax deductible.

Embed the above image on your site using the code below:<a href="<a href="http://intuitturbotax.files.wordpress.com/2012/09/textbook-shopping-fnl.png"><img" rel="nofollow" target="_blank">http://intuitturbotax.files.wordpress.com/2012/09/textbook-shopping-fnl.png"><img</a> src="<a href="http://intuitturbotax.files.wordpress.com/2012/09/textbook-shopping-fnl.png&quot" rel="nofollow" target="_blank">http://intuitturbotax.files.wordpress.com/2012/09/textbook-shopping-fnl.png&quot</a>; alt="textbook-shopping-fnl" title="textbook-shopping-fnl" width="580" height="2069" class="alignnone size-full wp-image-8428" /></a><br/>Free Tax Filing, Efile Taxes, Income Tax Returns - <a href="<a href="http://www.turbotax.com">TurboTax.com</a&gt" rel="nofollow" target="_blank">http://www.turbotax.com">TurboTax.com</a&gt</a>;

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.

Educator Expense Tax Deduction

Who qualifies? If you are a teacher, instructor, counselor, principal or aide for grades K-12, you will qualify if you work at least 900 hours during the school year.

What expenses qualify? You can claim up to $250 of expenses for classroom supplies, materials, books, computer equipment, software, other equipment, and supplementary materials that you pay from your own pocket, as long as you didn’t receive reimbursement. Here’s a little fine print: If you teach courses in health and physical education, your expenses for those courses must be related to athletics.

Do I have to itemize my tax deductions? That’s the best part – you can take the Educator Expense Deduction even if you claim the standard deduction and even if you file the short form. TurboTax will easily guide you through an interview and put the tax deduction on the right form.

My spouse is a teacher – can he claim the tax deduction as well? More good news: you can each claim the tax deduction for a combined total of $500, even if you file a joint return. Of course, you can’t each claim a deduction for the same costs, so be sure to split the purchases between you for maximum tax savings.

What’s the catch? For most people, there is no catch, but certain educators with unusual situations may find their deductions limited. That’s because the expenses have to exceed any interest on US savings bonds that you excluded from income because they were used to pay education expenses, and any tax-free distributions from a 529 plan or other tuition program that you excluded from income, including any tax-free withdrawals from your Coverdell Education Savings Account.  See, I told you that those situations were unusual.

Congress decided a few years ago to give teachers a tax break temporarily, but each time the Educator Expense Deduction is set to expire it has been extended. It is set to expire again at the end of 2011, so don’t pass up this limited-time opportunity. There are no guarantees that the deduction will be around for future years, so take advantage of the tax break this year and buy those qualifying supplies before year end.

American Opportunity Credit

Well, the government has a nice back-to-school program for parents and college students. It’s called the American Opportunity Credit and it benefits full-time and part-time college students who will be enrolled in classes this fall.

The American Opportunity Credit falls under the umbrella of the American Recovery and Reinvestment Act (ARRA) and offers a maximum tax credit of $2500 per student. Through the ARRA, more parents and students will qualify for the updated tax credit, which aims to help a greater number of families with yearly college expenses.

The American Opportunity Credit modifies the Hope Credit by allowing the tax credit to be available to a larger group of applicants. The primary modification is the change to qualifying household income levels. The full amount of the credit ($2500 per student) is available to individuals whose modified adjusted gross income is $90,000 or less; or $180,000 or less for married couples filing a joint return.

This tax credit is phased out for households with incomes higher than these levels.

The American Opportunity Credit offers a higher tax credit limit than the former Hope Credit or the Lifetime Learning Credit. According to the IRS, “It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for the first four years of college instead of two.”

Lifetime Learning Credit

Another perk available to you if you paid qualified college expenses is the Lifetime Learning Credit.  The credit is up to $2,000 per tax return and may be available if your modified adjusted gross income is $61,000 or less ($122,000 if you are married filing jointly).  The advantage of the Lifetime Learning Credit is there is no limit on the number of years that the deduction can be claimed for each student, so being a professional student may pay off.  The credit is available even if you are taking one class, not pursuing a degree, or you are a graduate student.

529 Savings Plans

Tax-free college savings plans and prepaid college tuition programs can be used for a wide assortment of eligible higher-education expenses such as computer equipment, classroom materials, books, educational supplies, dorm fees, and tuition.

529 plans are tuition programs that have been qualified and authorized under section 529 of the Internal Revenue Code. Especially in recent years, they have become a wise and popular way for families to save for a child’s college education. Though contributions to 529 plans are not tax deductible, the perks are that there is no income limit for the contributors, your investments grow tax deferred, and distributions for qualified college expenses are tax- free.

529 plan distributions (money taken out of the account to pay for college-related expenses) are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. It is best to check with your 529 plan account manager and with the IRS to make absolutely sure your expense is qualified.

Authorized expenses can be tuition, required fees, books, supplies, equipment and special needs services. Room and board also qualify if the 529 plan beneficiary is at least an official half-time student.

Additions made to this list because of modifications made by the ARRA are “expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for computer technology are not qualified expenses for the American Opportunity Credit, the Lifetime Learning Credit, or the Tuition and Fee Deduction.”

In short, you can use 529 plan distributions for a laptop and computer software requirements, but not an Xbox 360 or the latest DVD.

If your child is already in college, then it’s not going to do much good to start a new 529 plan. However, even if you have a child in high school, you still have time to contribute to a 529 plan and reap some of the benefits.

Tuition and Fees Deduction

If you do not qualify for the American Opportunity Credit and the Lifetime Learning Credit you may qualify for the Tuition and Fees Deduction if your modified adjusted gross income is $80,000 or less ($160,000 if married filing jointly). The Tuition and Fees Deduction is another education tax benefit available to taxpayers who pay for higher education.  The tax deduction was set to expire in 2009, but is now still available through 2011.

This deduction can directly reduce your taxable income by up to $4,000. Basically, this means you are able to claim this deduction even if you don’t itemize deductions on Schedule A (Form 1040).  Some of the other benefits of the tax deduction are it reduces your AGI, which may qualify you for other tax deductions and credits, there is no limit on the number of years the deduction can be taken, and it doesn’t matter how many college courses you have taken at once.

And don’t forget to keep track of the interest you’ve paid on your student loans; it’s tax deductible too. Thankfully, your student loan lender usually sends you a form prior to tax season that clearly states exactly how much interest you’ve paid.

Filing Taxes

April is still 7 months away, but that doesn’t mean you can’t start organizing pertinent tax information. It’s never too early to say, “Make sure you file your taxes.” It’s important to get a jump on things because there are so many deduction and tax considerations when dealing with college expenses.

It would be good idea to keep an ongoing record of your income, possible deductions, and available tax credits. You’ll never know just how many credits and other tax benefits you qualify for as a college student or parent of a college student if you don’t take the time to find out for yourself.

Student loan interest deduction requirements

In order to claim your student loan interest as a tax deduction, you must satisfy several requirements. Married persons who file separately cannot claim a deduction for student loan interest. Also, neither you, nor your spouse if applicable, can be claimed as a dependent on another person’s tax return. Finally, the deduction is only available if your modified adjusted gross income is below the annual limit. In 2010 for example, your modified adjusted gross income must be less than $75,000 for a single filer, or less than $150,000 when filing a joint return.

Annual deduction limitations

You can deduct only the student loan interest you pay during the tax year, subject to annual limitations. If you pay at least $600 of interest, you will receive a form 1098-E that reports your total payments. If you pay less than $600, you can still claim the deduction, but you will have to consult your records or contact your lender to find out exactly how much interest you paid. Although the annual deduction limit is subject to change, in 2010 you can deduct up to $2,500 of student loan interest payments.

Eligible student loans

You can only claim the deduction for interest that accrues on student loan funds that you actually use to pay education-related expenses. For example, if during your senior year in college you use $2,000 of your student loan to purchase suits for your new job, the interest that accrues on that $2,000 is never deductible. Additionally, the loan cannot be from a relative or a qualified employer plan. Though you must be the one who is responsible for repaying the loan, you can use the funds to pay the school expenses of your spouse or dependents and still be able to claim the deduction.

Reporting the deduction

To claim the income tax deduction, you cannot file your income taxes on Form 1040EZ. Since the deduction is an adjustment to income, you don’t have to itemize your deductions to claim it. Unlike many other deductions, there are no additional IRS forms to prepare; however, the IRS instructions include a worksheet to help you calculate the right amount.

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.

Some taxpayers who filed electronically and received an acknowledgement from the IRS are concerned when they visit “Where’s My Refund” and are told that IRS has no information regarding their tax return. The IRS informed us on February 10 that this is a temporary situation and should be resolved in several days.  At that time, you will be able to get an expected refund date when you visit “Where’s My Refund.”

This is an IRS issue and impacts returns regardless of who sends them in
to the IRS. This is not a TurboTax issue.

If you have received an acknowledgement of your tax return from the IRS, then the IRS assures us they have received your return and are processing it.

Information on the status of your refund will be updated in “Where’s My
Refund” once your return processes. This is a temporary situation, and we expect to resolve the matter in a few days.

IRS expects the vast majority of tax refunds to continue to be issued
within the historical range of 10 to 21 days.

The IRS has updated it’s Where’s My Refund site with additional FAQs: http://www.irs.gov/newsroom/article/0,,id=254102,00.html

Update: IRS announced they will begin accepting delayed returns Feb. 14

Ready to file your taxes already?  You can electronically file your 2010 tax return with TurboTax today, even if you are affected by the recently announced IRS processing delays.  If you prepare and e-file your return with TurboTax we will automatically e-file your federal tax return when the IRS begins accepting them in February, you can receive your state refund as soon as possible and be done with your taxes!

“There’s no need to wait to file your taxes this year,” said Bob Meighan, CPA and vice president of TurboTax. “By e-filing now with TurboTax, your return is in the queue when the IRS starts processing refunds. TurboTax will notify you the moment your return has been e-filed with the IRS and we’ll let you know when to expect your federal refund. In addition, we’re working with states to help our customers get their state tax refunds without delay. There’s no reason to wait or worry with TurboTax.”

Wondering if you your tax return will be affected by IRS delays?  Taxpayers who itemize tax deductions and those claiming the Higher Education Tuition and Fees deduction or the Educator Expense Deduction will be impacted by the delays, which affect all tax preparation methods and include both e-filed and paper tax returns.  You can also check out this post to find out if your state is anticipating any delays of state tax returns.

A quick tip: the IRS is urging all taxpayers to electronically file their 2010 taxes to ensure accurate returns and faster refunds. Once the IRS begins processing tax returns affected by the delays, if you e-file and choose direct deposit you can expect your tax refund in as little as eight days.

If you still have questions about the IRS delays or any other tax question you can take advantage of a free answer from a TurboTax tax expert through Jan. 31 at http://www.freetaxquestion.com.

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.