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Credit for College Students

17th January 2011
By Pamela Parker in Taxes
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While filing your online tax return you can never be sure that the choice of deductions etc that you have made is the perfect one. You can often miss on a lot of deductions just because there were some change in terms and phrases by the IRS or the rules changed slightly. In order not to miss these deductions one has to be proactive and well informed. Many people generally get a tax preparer to do the job for them. The tax preparers are experts in tax filing and it is their duty to be informed about the latest changes that have been made by the IRS. But if you are not using the services of a tax preparer then there is a very good chance that you miss some things. Before you efile 1040 do take a look at this.

Parents of college kids know the $2,000 Hope credit is just for the first two years of college. After that, the lower Lifetime Learning credit applies.

But that's not how it works after 2009. Instead, the credit has been renamed, increased and expanded. It's now called the American Opportunity Credit, and it will rebate up to $2,500 for each qualifying student for the first four years of college.

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 those levels. The income limits are higher than last year's.

Well if you are filing your tax online and even if it is the simplest of 1040ez online you probably want to save some tax by getting those deductions that you do not get. But then you will have to file another form because you efile 1040 when you are availing only the standard deduction. Anyways, just to inform you, you can save tax if you inherit certain kind of property from someone.

This break can save you a lot of money if you inherited an individual retirement account from someone whose estate was big enough to be subject to the federal estate tax.

Basically, you get an income tax deduction for the amount of estate tax paid on the IRA assets you received. Let's say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor's estate added $45,000 to the estate tax bill. You get to deduct that $45,000 on your tax return as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A. That would save you $6,300 in the 28% bracket. So if you get the mail in your mailbox about your inheritance of a large estate, do not be worried that it will all be gone into tax and all, but make sure to file your deductions and avail them. This is one of those deductions that people are not generally aware of and tend to miss.
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