Tax Deduction For Students

Eric C. Fortier
November 30, 2012
Filed under Archives 2009

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By Eric Fortier

$2500 TAX CREDIT FOR FIRST FOUR YEARS OF COLLEGE

by Eric C. Fortier

Everyone is looking for an opportunity to save money with the current financial market and the rising cost of tuition.

This month, politicians began to publicize a $2,500 college tuition tax credit that was included in the American Reinvestment and Recovery Act (ARRA). Many families and students are not aware of the provision included in the legislation that modified the existing Hope Credit for tax years 2009 and 2010. The American Opportunity Credit is available for taxpayers who have an income of $80,000 or less; for married couples filing a joint return the limit is $160,000. This modification opens the doors for many families and students to take advantage of the credit.

Here’s how the credit works: college students or their parents can receive a tax credit for 100 percent of the first $2,000 spent on tuition and a credit of 25 percent of the next $2,000, which is $500. In order to receive the full $2,500, a student must have $4,000 in qualified expenses related to college.

What does qualified expenses mean? It includes tuition, housing, books, and other required course material. Books have never been eligible for education credits before, so students are encouraged to keep bookstore receipts.

In addition, 40 percent of the credit is refundable. Even if students or parents owe no tax, they can receive an annual payment from the credit of up to $1,000 for each student. A family is not limited to only one student. It can get the credit for each student in the household for the first four years of college.

Like other commuters here at Mercy, Michelle Grant works while attending college. When asked if she knew about the credit, she said, “Wow, that’s incredible. I didn’t know about the credit. Now that I know I will definitely take advantage of it!”

Student and parents who don’t know about the credit can’t take advantage of it. When filing your taxes this spring, in order to get the credit, students and families need to file Form 8863 and attach it to Form 1040 or 1040A.

It’s important for all to know that the savings are a tax credit, not a deduction. This means that families who owe a tax burden of over $2,500 will have their tax reduced by that amount. Families that owe less than $2,500 in tax will get the remaining amount as cash back.

Comments

One Response to “Tax Deduction For Students”

  1. Pan on December 6th, 2012 5:35 pm

    American Express will permanently bcilklast you, if you have a bankruptcy in your past. The only way that you might get around this is if you have a partner with good credit who will apply for the card on behalf of the business, and then add you as an authorized user later.If you need to establish business credit, you will need a Tax ID#, which I am sure you already have. Next, you will need a Dunn Bradstreet Number. Don’t let them force you to pay money to have a report established. They will try to sell you services, but you can get a number at no charge. Each year, you can voluntarily provide your business financial information to them. None of this costs money. They will try to tell you otherwise, but do not believe them!As far as cleaning your personal credit, work with National Consumer Rights Alliance. They have removed things that you would not believe could even be removed from reports! Even bankruptcies. Their website appears below.In order to get your business credit established, it helps to have about six people who have extended you credit to report to D B. Start with your CPA, attorney, local printer, and landlord. After that, you can set-up business accounts with Office Depot, Home Depot, Lowe’s, and others quite easily. As you build your credit with these companies, they will report your payment history to D B, and that will generate a PayDex Score. NEBS, Reliable Office Supplies, National Sanitary Supply, and U-Line all give easy business credit and report as well.Once you have been in business for two years, and you have a good payment record, you should have little problem getting business credit without a personal guarantee. Dell Computer will give you credit after you have already been established at least one year.Business credit cards (Visa, Amex, MC) do not report to D B, but may report to Experian Business. Do everything that you can to avoid having to provide a personal guarantee for any business debt. If you must give a PG early on, try to get it removed after six to twelve months of good payment history.The second link below will give you a large business credit line (up to $25,000) that will report as a positive account to D B. You can also set-up a personal line ($5K to $10K) with the same source.I wish you luck, both in your business, and with your personal credit situation.

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