Do you have any students in your family, or are you a student yourself? If so, then the American Opportunity Tax Credit may help you decrease your tax obligations for 2009 and 2010. Like the Hope Credit, you can claim this new tax credit for tuition and certain fees you pay for higher education either last year or in 2010. But there have been some changes to the benefit of students and those who claim students.

Below is a list of the new changes for the American Opportunity tax credit.

Higher Amount You can Claim

• The new American Opportunity tax credit limit is $2,500, up $700 from the Hope Credit.

New Definition for Tuition and Qualified Expenses

• Tuition is still covered for the American Opportunity tax credit, but now course materials are also covered, which include books, supplies and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.

Refundable Tax Credit

• Unlike the Hope Credit, you can now get up to $1,000 of the tax credit refunded to you by Uncle Sam or 40% of it; this will make a difference to lower-income taxpayers who owe smaller amounts of taxes.

Help for Middle and Higher Income Earners

• Phaseout begins at $80,000 for single filers, or $160,000 for married joint filers.
• Full credit is allowed to help offset the Alternative Minimum Tax.

Years Three and Four of the Post-Secondary College Years can be Claimed

• The American Opportunity tax credit can be claimed for 4 years of post-secondary education, versus the first two years of the post-secondary education under the Hope Credit (although this credit is only good for 2009 and 2010 at the moment).

In order to claim the American Opportunity tax credit, you will need to fill out form 8863 and attach it to Form 1040 or 1040A.

Please note, you cannot claim both the American opportunity tax credit and the tuition and fees deduction in the same year for the same student. To figure out which tuition tax benefit to take, review Tuition Deduction vs. Tuition Tax Credit.

 Print   |   Email   |  1 Comment

Looking for unemployed tax deductions? You’re in luck, there are several tax deductions related to unemployment, job searching, or moving for a new job that will give you tax relief at a time when you probably need it most.

Unemployment reached 10% in the United States for 2009, sending over 16 million people home without their normal paychecks. Some politicians and statisticians argue that the number is actually higher than 10% because the way that the information is gathered on unemployed people means that some people who are technically unemployed are not counted at all, including people who have been unemployed so long that they have simply just stopped looking for a job, or people who are underemployed (i.e. working part-time, but want more hours).

Tax Exempt Unemployment Payments

Typically if you receive unemployment from the government, you have to pay income taxes on all of it. With the passing of the American Recovery and Reinvestment Act, the first $2,400 of any unemployment compensation you received in 2009 is not taxable.

In order to take this tax exemption, on the 1099-G form you receive from the government, subtract out $2400 from the amount in Box 1, and then report this new amount on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. You can file a 1040EZ online for free.

Note: You will not receive an unemployment W2 form, which is a common misconception.

Tax Deduction for Employment Search

You can deduct certain job search expenses so long as you are searching for a job in the same occupation, you itemize your taxes, and your miscellaneous itemized deduction write-offs (where you will be taking the job expense deductions) is greater than 2% of your adjusted gross income. If you are temporarily working in another field while looking for a job in the same occupation as before, then you can still take this tax deduction.

The following job search expenses are tax deductible: resume preparation, postage, copying fees, headhunter fees, meals while traveling (up to 50%), and mileage (for going to and from interviews, job counselors, etc.). These costs cannot be reimbursed by a potential employer.

Tax Deduction for Moving Expenses When Moving for a New Job

Did you move to take a new job? To qualify for the moving tax deduction, your new job must be at least 50 miles farther from your old home than your old job location was. Also, you must work at the new job for at least 39 weeks during the first 12 months after you move in the area of your new job.

If you qualify, you can deduct “reasonable” costs associated with your move, such as the cost of traveling from your old home to your new home, and the cost of moving your family members, including gas mileage, airfare, parking, tolls, etc. You can also deduct the cost of packing up your belongings and moving them, as well as connecting and disconnecting utilities, shipping your car and pets to your new home, the cost of storing your belongings within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home, and lodging while in-transit.

 Print   |   Email   |  3 Comments

I just finished an amended tax return for a client this week. She originally efiled her tax return for free with H&R Block.

However, a few weeks later she received some 1099s reporting interest she had forgotten about. In addition, she didn’t know that she was eligible to claim the American Opportunity education tax credit for her tuition.

When to File an Amended Tax Return

You’ll need to file an amended tax return if you made a mistake and need to fix your income, deductions, or credits.

In this case, my client needed to report the additional interest which affected her income, and she needed to claim the education tax credit.

How to File an Amended Tax Return

Amended tax returns have to be filed using the paper form 1040X, which is different from the original form 1040 you used to file the first time.

You can find the 1040X in all the tax software programs like TurboTax. You need to include a corrected income tax return with the amendment. Here’s how to complete the 1040X:

• New Numbers. Include the numbers from your original tax return, your new tax return, and the difference between the two.
• Explanation. You’ll need to explain to the IRS what you are changing and why. For example, if you forgot to claim your new car tax deduction, identify the change clearly and explain why. I also include the amount of the change and keep the explanations very concise.
• Mail Your Return. Amended tax returns cannot be efiled, so you’ll have to mail them to the IRS. Don’t forget to sign and date your return before you drop it in the mail!

How Long to Keep your Amended Tax Return

After you file your amended tax return, keep your tax return for 3 years or 2 years from when you paid the tax if it’s later. For more information, see how long to keep tax returns.

Amended Tax Return Deadline

The deadline for filing amended tax returns is three years after the original tax deadline on April 15. For example, a 2009 tax return can be amended until April 15, 2013.

The good news… our client will be getting back another $2,000 for filing an amended tax return!

 Print   |   Email   |  3 Comments

We pay lots of attention to income tax returns around here, but they’re not the only tax returns with a tax deadline on April 15th. If you made a significant gift during 2009, you will also need to file a gift tax return.

Update: The 2011 annual gift tax exclusion remains at $13,000.

Gift Tax Basics

In 2009 and 2010, the first $13,000 you give to any gift recipient is completely tax-free – this is called the annual exclusion. Spouses can each give $13,000 to a single recipient ($26,000 total), and you can give up to $13,000 to as many people as you want without paying taxes.

In addition, each taxpayer has a “lifetime exemption” of $1,000,000 that applies to all recipients. Once you have used up your $13,000 exclusion in a year, you start drawing against the $1,000,000 exemption. If you eventually gift more than $1,000,000 above your annual exclusion gifts, any additional gifts are subject to gift taxes of as much as 45%.

The following items are not considered gifts:

• Transfers under the annual exclusion amount ($13,000 in 2009 and 2010)
• Transfers to a spouse
• Medical or tuition payments made directly to a medical or educational institution
• Gifts to a political organization

In addition, contributions to charities are considered gifts but are not subject to taxes – if they are over $13,000, a gift tax return must be filed, but the entire amount can be deducted.

For more on gift taxes, see IRS Publication 950.

Filing a Gift Tax Return

You must file a gift tax return using IRS Form 709 no earlier than January 1 of the year after the gift was made and no later than April 15. Each individual must file their own return – there are no joint returns. You must file a gift return for 2009 if:

• You made a gift to one person or charity exceeding $13,000
• You and your spouse made a gift of any amount and decided to make a “split gift election,” meaning the gift is 50% from you and 50% from your spouse
• You made a gift of a “future interest,” such as the right to use land in the future or withdraw money from a trust in a certain number of years. Future interest gifts are not eligible for the annual exclusion.

If you cannot meet the deadline for your gift tax return, you can file an extension using Form 4868.

If you have complex gift issues, or are making a large gift for the first time, it’s a good idea to work with an accountant or tax preparer to make sure you cover all your bases. Finally, if you intend to make significant gifts in the future, consider working with a financial planner to create a gifting strategy that will help you minimize gift taxes over time.

 Print   |   Email   |  4 Comments

Most of us watched as the horrible events unfolded after the earthquake hit Haiti on January 12^th, 2010, eventually killing over 217,000 people. Financial aid began pouring into the ravaged country, totaling more than $625 million at the writing of this article. However, much more is going to be needed to bring a country that was already on the brink of poverty back to an acceptable, stable state.

The U.S. government has extended the deadline for Haitian donations deductible on your 2009 tax returns to February 28, 2010 through the Haiti Assistance Income Tax Incentive Act, signed by President Obama on January 22, 2010. Here’s some information on where to donate and how to claim your tax deduction:

Donation Resources

Donations must be monetary in order to take a tax deduction, and also must be given to a U.S. charity for specific use to the Haitian disaster relief.

A fantastic list of resources, including a description of how your donations will be used, has been compiled by CNN. Each of these charities has been highly rated by Charity Navigator, a website that rates charities based on two broad areas of financial health: their organizational efficiency and their organizational capacity.

Necessary Documentation for Haiti Tax Deduction

You must keep documentation showing that you made this donation (you do not need to submit this documentation if you e-file, but keep it on file in case of an audit). The documentation could be a bank statement, a cell phone bill (if you donate through text messaging), a thank you letter from the charity, a credit card statement, etc. Make sure it includes the name of the charity you donated to, the amount that you donated, and the date of the contribution. For donations of $250 or more, it is required that you have a record from the charity as proof.

How to Claim Haiti Tax Deduction

The deduction is available to those who itemize. Deduct your donation on Schedule A of your 1040 form under the “Gifts to Charity” section, Line 16 (‘Gifts by cash or check’). See instructions on page A-8 for more information.

 Print   |   Email   |  3 Comments