Making your tax dollars work
First of two parts
After the stock market crash last fall, a tough economy and layoffs, whipsawed taxpayers now are facing the dreaded annual tax season.
So you're not too eager to jump on those forms yet? Think again.
You should be aware of some tax regulations or changes that could help put a few more dollars into your pocket, experts said.
This year, new items such as the Recovery Rebate Credit and the First-Time Homebuyer Credit are available, said William E. Dever Jr., principal with Oak Brook-based JMG Financial Group Ltd.
"Some of these tax credits are getting to be like college scholarships," said Dever.
"They are out there, but you have to know they exist and how to file to take advantage of them."
There are several credits and deductions that taxpayers of all groups should be aware of, said IRS spokeswoman Sue Hales said.
Today, we'll look at some possibilities for college students and married couples with children. Friday's article will focus on singles, people of all ages and senior citizens.
College students
• Take advantage of education credits like the Hope Credit and the Lifetime Learning Credit. If the level of the parent's income is too high to qualify for these credits, the parent can forgo claiming the student as a dependent. Often the benefits of claiming the exemption are phased out anyway, and the student may then be eligible to claim the credit, Dever said.
The Hope Credit applies only for the first two years of postsecondary education, such as college or vocational school. It does not apply to graduate and professional-level programs. It can be worth up to $1,500 per eligible student, per year.
You're allowed 100 percent of the first $1,000 of qualified tuition and related fees paid during the tax year, plus 50 percent of the next $1,000.
The Lifetime Learning Credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills. If you qualify, your credit equals 20 percent of the first $10,000 of postsecondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return.
• You may be able to deduct up to $2,500 of interest on your student loan without itemizing.
Any loan used to pay qualified education expenses is eligible.
The expenses are treated as paid within a reasonable period of time if both of the following requirements are met: The expenses relate to a specific academic period, and the loan proceeds are disbursed 90 days before to 90 days after that academic period.
Married, children
• The Adoption Credit is available for qualifying expenses paid to adopt an eligible child. Qualifying expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home) and other expenses. The maximum credit is $12,150 for 2009 and $11,650 for 2008.
• The Earned Income Tax Credit is available to increase your refund, even if you have no taxable income. For 2008, you may be eligible if you earned less than $33,995 ($36,995 married filing jointly) with one qualifying child; or $38,646 ($41,646 married filing jointly) with two or more qualifying children. The maximum credits for 2008 are $4,824 with two or more qualifying children and $2,917 with one qualifying child.
• The Child Tax Credit is worth up to $1,000 for each qualifying children under age 17 at the end of 2008. There are income limitations to claiming this credit.
• Child and Dependent Care Credit. You may be able to take up to 35 percent of your expenses for care of a child under age 13 or for a spouse or dependent who is not able to take care of him/herself. To qualify, you must pay these expenses to work or look for work.
• Coming Friday: Singles and seniors