Offset Education Costs

Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits, rather than deductions, you may be able to subtract them in full dollar for dollar from your federal income tax.

The Hope Credit

• Applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs.
• It can be worth up to $1,650 per eligible student, per year.
• You're allowed a credit of 100% of the first $1,100 of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,100.
• Each student must be enrolled at least half-time for at least one academic period which began during the year.
• The student must be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

The Lifetime Learning Credit

• Applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program.
• If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return.

You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year. To qualify for either credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

These credits are phased out for Modified Adjusted Gross Income over $47,000 ($94,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $57,000 or more ($114,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.

For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Form 8863, Education Credits (PDF 82K)
• Publication 970, Tax Benefits for Higher Education (PDF 368K)
• Tax Topic 605

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Are You Eligible for a Tax Credit?

Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes.

Taxpayers should consider their eligibility for the credits listed below:

• The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.
• The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
• The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
• Adoption Credit Adoptive parents may qualify for a tax credit of up to $11,390 for qualifying expenses paid to adopt each eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For more information, see the instructions for Form 8839, Qualified Adoption Expenses.
• Credit for the Elderly or the Disabled This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly or the Disabled.
• Savers Credit (formally called the Retirement Savings Contribution Credit) You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. For more information, see IRS Publication 590, Individual Retirement Accounts.

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check the instructions for Form 1040, the listed publications, and additional information that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www .irs.gov.

Links:

• 1040 Central
• Publication 596, Earned Income Credit (EIC) (PDF 281K)
• Publication 972, Child Tax Credit (PDF 128K)
• Publication 503, Child and Dependent Care Expenses (PDF 167K)
• Publication 524, Credit for the Elderly and Disabled (PDF 140K)
• Publication 970, Tax Benefits for Education (PDF 368K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
• Form 1040 Instructions (PDF 1,101K)

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Guidelines For Roth IRA Contributions

From the IRS:

Although Roth IRAs are popular retirement arrangements, some taxpayers may be confused about whether they can contribute to a Roth IRA. Here are some helpful guidelines:

• Income Limits To contribute to a Roth IRA, you must have taxable compensation (e.g., wages, salary, tips, professional fees, bonuses). These limits vary depending on your filing status.
• Age There is no age limitation for Roth IRA contributions.
• Contribution Limits In general, if your only IRA is a Roth IRA, the maximum 2007 contribution limit is the lesser of your taxable compensation or $4,000 ($5,000 if age 50 or older). The maximum contribution limit phases out depending on your modified adjusted gross income.
• Spousal Roth IRA You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.

Time Contributions to a Roth IRA can be made at any time during the year or by the due date of your return for that year (not including extensions).

Roth IRA contributions are not tax deductible and are not reported on your tax return. On the other hand, you do not have to pay tax on any qualified distributions, distributions that are a return of your regular Roth IRA contributions, or distributions that are rolled over into another Roth IRA.

For complete information and definitions of terms, get Publication 590,

Individual Retirement Arrangements. Visit the IRS Web site at IRS.gov, or call 800-TAX-FORM (800-829-3676) to request a free copy of the publication.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Publication 590, Individual Retirement Arrangements (PDF 461K)

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Plan Now to Get Full Benefit of Saver’s Credit

IR-2007-187, Nov. 9, 2007

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2007 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Formally known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

“We want low- and moderate-income workers to know about this valuable credit so they can effectively plan ahead and take full advantage of it,” said Richard J. Morgante, commissioner of the Wage and Investment Division of the IRS. “Now that a growing number of employers are automatically enrolling their employees in 401(k) plans, the saver’s credit offers many workers who save for retirement an added bonus.”

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2007 tax return. People have until April 15, 2008, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2007. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2008 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

*
Married couples filing jointly with incomes up to $52,000 in 2007 or $53,000 in 2008;

*
Heads of Household with incomes up to $39,000 in 2007 or $39,750 in 2008; and

*
Married individuals filing separately and singles with incomes up to $26,000 in 2007 or $26,500 in 2008.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

Read The Rest

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Honda Hybrid Begins Phase-Out on January 1

The Internal Revenue Service announced today that American Honda Motor Company, Inc, has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealers reached the 60,000-vehicle limit during the calendar quarter ending Sept. 30, 2007.

Under the current tax law, the credit for buying a hybrid vehicle begins to phase out in the second calendar quarter after the quarter in which the manufacturer sells its 60,000th hybrid or lean burn technology vehicle.

The credit for all new qualified hybrid passenger automobiles or light trucks manufactured by Honda will begin to phase out on Jan. 1, 2008.

Vehicles purchased before Jan. 1, 2008 qualify for the full credit. For Honda hybrid vehicles bought on or after Jan. 1, 2008, and on or before June 30, 2007, the credit is 50 percent of the otherwise allowable credit amount. Taxpayers buying vehicles on or after July 1, 2008, and on or before Dec. 31, 2008, can only get 25 percent of the credit.

Here are the credit amounts for Jan. 1, 2008, through June 30, 2008:

* Honda Accord Hybrid AT, Model Year 2007 — $650
* Honda Accord Hybrid Navi AT, Model Year 2007 — $650
* Honda Civic Hybrid CVT, Model Year 2007 —$1,050
* Honda Civic Hybrid CVT, Model Year 2008 — $1,050


Here are the credit amounts for July 1, 2008 – Dec. 31, 2008:

* Honda Accord Hybrid AT, Model Year 2007 — $325
* Honda Accord Hybrid Navi AT, Model Year 2007 — $325
* Honda Civic Hybrid CVT, Model Year 2007 —$525
* Honda Civic Hybrid CVT, Model Year 2008 — $525

Beginning Jan 1, 2009, taxpayers who buy a Honda hybrid cannot claim the related tax credit.

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2008 Nissan Altima Certified as Qualified Hybrid Vehicle

WASHINGTON — The Internal Revenue Service has acknowledged the certification by Nissan North America, Inc., that its 2008 Nissan Altima Hybrid vehicle meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.

The credit amount for the hybrid vehicle certification of the 2008 Nissan Altima Hybrid is $2,350.

The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. Nissan sold 2,627 qualifying vehicles to retail dealers in the quarter ending Sept. 30, 2007. This brings the total number of qualified hybrid vehicles sold to 7,849.

Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

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Tax Break Helps Low- and Moderate-Income Workers Save for Retirement

Plan Now to Get Full Benefit of Saver’s Credit; Tax Break Helps Low- and Moderate-Income Workers Save for Retirement

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2007 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Formally known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

“We want low- and moderate-income workers to know about this valuable credit so they can effectively plan ahead and take full advantage of it,” said Richard J. Morgante, commissioner of the Wage and Investment Division of the IRS. “Now that a growing number of employers are automatically enrolling their employees in 401(k) plans, the saver’s credit offers many workers who save for retirement an added bonus.”

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2007 tax return. People have until April 15, 2008, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2007. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2008 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

* Married couples filing jointly with incomes up to $52,000 in 2007 or $53,000 in 2008;
* Heads of Household with incomes up to $39,000 in 2007 or $39,750 in 2008; and
* Married individuals filing separately and singles with incomes up to $26,000 in 2007 or $26,500 in 2008.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In 2005, the most recent year for which complete figures are available, saver’s credits totaling more than $900 million were claimed on nearly 5.3 million individual income tax returns. Saver’s credits claimed on these returns averaged $216 for joint filers, $149 for heads of household and $140 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

* Eligible taxpayers must be at least 18 years of age.
* Anyone claimed as a dependent on someone else’s return cannot take the credit.
* A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
* Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2007, this rule applies to distributions received after 2004 and before the due date (including extensions) of the 2007 return. Form 8880 and its instructions have details on making this computation.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted last year. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on this Web site.

Related Item: Publication 590, Individual Retirement Arrangements (IRAs)

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2008 Hybrids Certified As Tax Credit

WASHINGTON — The Internal Revenue Service acknowledged the certification by Toyota Motor Sales U.S.A., Inc., that several of its Model Year 2008 vehicles qualify for the hybrid vehicle tax credit. Only vehicles purchased prior to Oct. 1, 2007, qualify for a credit.

For purchases made April 1, 2007, through Sept. 30, 2007, the hybrid vehicle certifications recently acknowledged by the IRS and their credit amounts are:

* 2008 Toyota Prius Hybrid — $787.50
* 2008 Toyota Camry Hybrid — $650
* 2008 Toyota Highlander Hybrid 4WD — $650
* 2008 Lexus LS 600h L Hybrid — $450
* 2008 Lexus RX 400h 2WD and 4WD — $550

No credit is allowed for purchase of these vehicles after September 30, 2007.

The credit amounts reflect a decrease in the credit beginning on Oct. 1, 2006, as a result of the manufacturer’s having sold 60,000 qualified hybrid motor vehicles.

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Honda Compressed Natural Gas Vehicle is Certified for the Qualified Alternative Fuel Motor Vehicle Tax Credit

WASHINGTON — The Internal Revenue Service has acknowledged the certification by American Honda Motor Company, Inc., that its Honda Civic GX Model Year 2008 vehicle meets the requirements of the Qualified Alternative Fuel Motor Vehicle Credit.

The Qualified Alternative Fuel Motor Vehicle Credit was enacted by the Energy Policy Act of 2005. To qualify these vehicles can operate only on alternative fuels or mixed fuels (a combination of alternative fuel and petroleum based fuel). The 2008 Honda Civic GX is an alternative fueled vehicle that operates on compressed natural gas. This vehicle should not be confused with hybrid vehicles.

The Qualified Alternative Fuel Motor Vehicle Credit amount for the Honda Civic GX Model Year 2008 is $4,000.

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Purchasers of Ford Hybrids Still Qualify for Tax Credit

Purchasers of Ford Hybrids Still Qualify for Tax Credit

WASHINGTON — The Internal Revenue Service announced that purchasers of qualified Ford Motor Company vehicles may continue to claim the Alternative Motor Vehicle Credit.

The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. Ford sold 5,196 qualifying vehicles to retail dealers during the quarter ending Sept. 30, 2007. This brings the cumulative number of qualified Ford hybrid vehicles sold to 38,743.

The credit amount and make and model of the certified vehicles sold are:

* Ford Escape 2WD Hybrid Model Year 2008 $3,000
* Ford Escape 2WD, Model Years 2005, 2006 and 2007 $2,600
* Ford Escape 4WD Hybrid Model Year 2008 $2,200
* Ford Escape 4WD, Model Years 2005, 2006 and 2007 $1,950
* Mercury Mariner 4WD Hybrid Model year 2008 $2,200
* Mercury Mariner 4WD, Model Years 2006 and 2007 $1,950
* Mercury Mariner 2WD Hybrid Model Year 2008 $3,000

Purchasers of Ford’s qualified vehicles may continue to rely on the certifications concerning the vehicles’ qualification for the credit.

Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

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Purchasers of GM Hybrids Still Qualify for Tax Credit

Purchasers of GM Hybrids Still Qualify for Tax Credit

WASHINGTON — The Internal Revenue Service announced that purchasers of qualified General Motors Corp. hybrid vehicles may continue to claim the Alternative Motor Vehicle Credit.

GMC sold 123 qualifying vehicles to retail dealers in the quarter ending Sept 30, 2007. This brings the cumulative number of qualified GM hybrid vehicles sold to 9,577. The credit amount and make and model of qualified vehicles sold are:

• Chevrolet Silverado Hybrid 2WD, Model Years 2006 and 2007 $250
• Chevrolet Silverado Hybrid 4WD, Model Years 2006 and 2007 $650
• GMC Sierra Hybrid 2WD, Model Years 2006 and 2007 $250
• GMC Sierra Hybrid 4WD, Model Years 2006 and 2007 $650
• Saturn Vue Green Line, Model Year 2007 $650
• Saturn Aura Hybrid, Model Year 2007 $1,300

Purchasers of GMC’s qualified vehicles may continue to rely on the certifications concerning the vehicles’ qualification for the credit.

Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

Related Item: Hybrid Cars and Alternative Fuel Vehicles