About: College and Tuition Credits

American Opportunity Credit

Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American opportunity credit, to pay for college expenses.

The American opportunity credit is not available on the 2008 returns taxpayers are filing during 2009. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. 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. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.

Special rules apply to a student attending college in a Midwestern disaster area. For tax-year 2009, only, taxpayers can choose to claim either a special expanded Hope credit of up to $3,600 for the student or the regular American opportunity credit.

If you have questions about the American opportunity credit, these questions and answers might help. For more information, see American opportunity credit.

Hope Credit

The Hope credit generally applies to 2008 and earlier tax years. It helps parents and students pay for post-secondary education. The Hope credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. The Hope credit you are allowed may be limited by the amount of your income and the amount of your tax.

The Hope credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents’ college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time.

Generally, you can claim the Hope credit if all three of the following requirements are met:

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

You cannot take both an education credit and a deduction for tuition and fees (see Deductions, below) for the same student in the same year. In some cases, you may do better by claiming the tuition and fees deduction instead of the Hope credit.

Education credits are claimed on Form 8863, Education Credits (Hope and Lifetime Learning Credits). For details on these and other education-related tax breaks, see IRS Publication 970, Tax Benefits of Education.

Lifetime Learning Credit

The lifetime learning credit helps parents and students pay for post-secondary education.

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the Hope or American opportunity credit and lifetime learning credits for the same student in one year. Thus, the lifetime learning credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

Generally, you can claim the lifetime learning credit if all three of the following requirements are met:

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

If you’re eligible to claim the lifetime learning credit and are also eligible to claim the Hope or American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope or American opportunity credit for one student and the lifetime learning credit for another student in the same year.

Self-Employed Individuals Tax Center

Self-Employed Individuals Tax Center

Who is Self-Employed? What Are My Self-Employed Tax Obligations? How Do I Make My Quarterly Payments? How Do I File My Annual Return? Business Structures Husband and Wife Business - What is a Qualified Joint Venture? Considering a Tax Professional Online Learning Tools Who is Self-Employed? Generally, you are self-employed if any of the following apply to you. You carry on a trade or business as a sole proprietor or an independent contractor. You are a member of a partnership that carries on a trade or business. You are otherwise in business for yourself (including a part-time business) Self-Employed: Don't Forget to Deduct Health Insurance Costs this Year Under the Small Business Jobs Act of 2010, for 2010, you can reduce your net self-employment income by the amount of your self-employed health insurance deduction on Form 1040. See the Instructions for Schedule SE (PDF). What are My Self-Employed Tax Obligations? As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax). Before you can determine if you are subject to self-employment tax and income tax, you must figure your net profit or net loss from your business. You do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040. But in some situations your loss is limited. See Pub. 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) for more information. You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions. How Do I Make My Quarterly Payments? Estimated tax is the method used to pay Social Security and Medicare taxes and income tax, because you do not have an employer withholding these taxes for you. Form 1040-ES, Estimated Tax for Individuals (PDF), is used to figure these taxes. Form 1040-ES contains a worksheet that is similar to Form 1040. You will need your prior year’s annual tax return in order to fill out Form 1040-ES. Use the worksheet found in Form 1040-ES, Estimated Tax for Individuals to find out if you are required to file quarterly estimated tax. Form 1040-ES also contains blank vouchers you can use when you mail your estimated tax payments or you may make your payments using the Electronic Federal Tax Payment System (EFTPS). If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter. See the Estimated Taxes page for more information. The Self-Employment Tax page has more information on Social Security and Medicare taxes. How Do I File My Annual Return? To file your annual tax return, you will need to use Schedule C (PDF) or Schedule C - EZ (PDF) to report your income or loss from a business you operated or a profession you practiced as a sole proprietor. Schedule C Instructions (PDF) may be helpful in filling out this form. Small businesses and statutory employees with expenses of $5,000 or less may be able to file Schedule C-EZ instead of Schedule C. To find out if you can use Schedule C-EZ, see the instructions in the Schedule C-EZ form. In order to report your Social Security and Medicare taxes, you must file Schedule SE (Form 1040), Self-Employment Tax (PDF). Use the income or loss calculated on Schedule C or Schedule C-EZ to calculate the amount of Social Security and Medicare taxes you should have paid during the year. The Instructions (PDF) for Schedule SE may be helpful in filing out the form. Business Structures When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Visit the Business Structures page to learn more about each type of entity and what forms to file. Husband and Wife Business - What is a Qualified Joint Venture? Husband and Wife Business The employment tax requirements for family employees may vary from those that apply to other employees. On this page we point out some issues to consider when operating a husband and wife business. Election for Husband and Wife Unincorporated Businesses For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a "qualified joint venture," whose only members are a husband and wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes. Considering a Tax Professional Tips for Choosing a Tax Preparer Online Learning Tools The Virtual Small Business Tax Workshop is composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities. It is available online and on a CD - Publication 1066C, A Virtual Small Business Tax Workshop. The IRS Video Portal contains video and audio presentations on topics of interest to small businesses, individuals and tax professionals. References/Related Topics Small Business and Self-Employed Tax Center Forms and Instructions - Filing and Paying Business Taxes Affordable Care Act Tax Provisions Business with Employees Business Taxes for the Self-Employed: The Basics (Video) Husband and Wife Business Publications and Forms for the Self-Employed Publication 225, Farmer's Tax Guide Publication 505, Tax Withholding and Estimated Tax Schedule C: Who needs to file and how to do it (Video) Should I File Schedule C or Schedule C-EZ? EFTPS: The Electronic Federal Tax Payment System

IRS Gives Truckers Three-Month Extension; Highway Use Tax Return Due Nov. 30

IRS Gives Truckers Three-Month Extension; Highway Use Tax Return Due Nov. 30

IR-2011-77, July 15, 2011 WASHINGTON — The Internal Revenue Service today advised truckers and other owners of heavy highway vehicles that their next federal highway use tax return, usually due Aug. 31, will instead be due on Nov. 30, 2011. Because the highway use tax is currently scheduled to expire on Sept. 30, 2011, this extension is designed to alleviate any confusion and possible multiple filings that could result if Congress reinstates or modifies the tax after that date. Under temporary and proposed regulations filed today in the Federal Register, the Nov. 30 filing deadline for Form 2290, Heavy Highway Vehicle Use Tax Return, for the tax period that begins on July 1, 2011, applies to vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to Nov. 1. To aid truckers applying for state vehicle registration on or before Nov. 30, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year, ending on June 30, 2011. Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. A state normally may accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through Sept. 30. For those acquiring and registering a new or used vehicle during the July-to-November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days. In general, the highway use tax applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on Aug. 31. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July. Last year, the IRS received about 650,000 Forms 2290 and highway use tax payments totaling $886 million.

IRA Contributions

Don't Pay Taxes Twice

Keep track of nondeductible IRA contributions so you won't pay Uncle Sam more than you have to when you withdraw funds in retirement or if you convert to a Roth.

Contributing to a traditional IRA is a great way to lower your tax bill. Unfortunately, not everyone qualifies for this deduction.

You don't have to itemize to deduct the amount you contributed to an IRA (and reduce your adjusted gross income dollar for dollar). But your income has to fall below certain levels to write off the full amount of your contribution. (Learn more about IRA contribution and deduction rules for your 2010 tax return and the rules for 2011.)
Related Links

If your income exceeds the limits for the tax break, you still need to keep track of your after-tax (nondeductible) contributions by filing a Form 8606 with the IRS, according to the March issue of Kiplinger's Personal Finance magazine. Here's why:

Filing a Form 8606 the years when you make nondeductible IRA contributions will be important when it's time to withdraw funds or if you convert to a Roth. Money that was already taxed is excluded from your taxable distribution or the taxable portion of the amount you convert on a pro-rata basis. For example, if you convert a $100,000 traditional IRA to a Roth and you made $10,000 in nondeductible contributions, 10% of the converted amount would be tax-free.

What if you haven't submitted the required form with your returns? You're in good company. Most people have never heard of Form 8606. You can file a form for past years and, although there's a $50 penalty for failing to file, it may be waived for reasonable cause. Call the IRS to explain your situation and ask how to proceed. Then, depending on how much money is at stake, you can decide whether it's worth the hassle of documenting earlier after-tax contributions.

Via - Kiplinger

Eight possible triggers for AMT

Hit with AMT? Eight possible triggers to look out for

1. Claiming a High Number of Personal Exemptions

The more exemptions you claim, the more likely it is you'll have AMT liability.

2. Significant State and Local Taxes

The point of the AMT is to cancel out disproportionately high deductions. This means if your state or local income or property taxes are high, you're more likely to be subject to the AMT. Taxpayers in traditionally high tax states such as California, New Jersey and New York tend to pay more AMT than taxpayers in other states.

3. High Levels of Medical Expenses

Since medical expenses push your itemized deductions higher, you may be subject to the AMT if you had a particularly significant amount of medical expenses in one year.

4. Lots of Unreimbursed Employee Expenses

Again, any expense that increases your itemized deductions can result in subjecting you to AMT. If you have a year in which you incurred a lot of unreimbursed employee expenses that were disproportionate to your income, you may be subject to the AMT. You'll have a similar result for other miscellaneous itemized deductions.

5. Exercise of incentive stock options (ISOs)

For years in the 1990s, the exercise of ISOs was nearly a guarantee that you'd be subject to AMT. That's changed a little as the exemption has crept up, but the danger is still there (the same analysis doesn't apply to sales of ISOs).

6. Long-Term Capital Gains

Long-term capital gain is better than ordinary income, right? So it's always better to have long-term capital gains, right? Not necessarily. A large capital gain reduces or eliminates the AMT exemption amount, which can result in your having to pay more tax.

7. Claiming Too Many Tax Credits

Increasing the amount of your tax credits tends to produce a better result than increasing your deductions. This is because credits reduce the amount of actual tax due, whereas deductions reduce the amount of taxable income. But credits do have a downside: The more credits you claim, the more likely it is you'll be subject to AMT.

8. Interest on a Second Mortgage

Interest you pay on a second mortgage that you don't use to improve your personal residence cannot be deducted under the AMT rules. This means that taxpayers who relied on a second mortgage or home equity line of credit (HELOC) to consolidate debts may be out of luck.
This list isn't meant to be exhaustive, just to get you thinking about what items on your tax returns might result in AMT. If you're beginning to think that the AMT is more complicated than you thought, you're not alone.

If you think the AMT might apply to you and you're not sure, try using the IRS AMT Assistant or consult with your tax professional. You can't always avoid the AMT, but there are planning techniques you can use to mitigate the consequences to you come Tax Day.

1.1 Billion for people who have not filed a 2007 tax return

WASHINGTON - The IRS is claiming that 1.1 billion dollars in federal refunds may be waiting for 1.1 million people who did not file a 2007 tax return. In order for taxpayers to claim their refunds they must file before April 18th, 2011.