Tax Credit Helps Pay for Higher Education Expenses

The IRS provides the following information about the new credit for higher education... The American Recovery and Reinvestment Act was passed in early 2009 and created the American Opportunity Credit. This educational tax credit – which expanded the existing Hope credit – helps parents and students pay for college and college-related expenses. Here are the top nine things the Internal Revenue Service wants you to know about this valuable credit and how you can benefit from it when you file your 2009 taxes. 1. The credit can be claimed for tuition and certain fees paid for higher education in 2009 and 2010. 2. The American Opportunity Credit can be claimed for expenses paid for any of the first four years of post-secondary education. 3. The credit is worth up to $2,500 and is based on a percentage of the cost of qualified tuition and related expenses paid during the taxable year for each eligible student. This is a $700 increase from the Hope Credit. 4. The term "qualified tuition and related expenses" has been expanded to include expenditures for required course materials. For this purpose, the term "course materials" means books, supplies and equipment required for a course of study. 5. Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year. 6. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back. 7. To be eligible for the full credit, your modified adjusted gross income must be $80,000 or less -- $160,000 or less for joint filers. 8. The credit begins to decrease for individuals with incomes above $80,000 or $160,000 for joint filers and is not available for individuals who make more than $90,000 or $180,000 for joint filers. 9. The credit is claimed using Form 8863, Education Credits, (American Opportunity, Hope, and Lifetime Learning Credits), and is attached to Form 1040 or 1040A. For more information about the American Opportunity Tax Credit visit the IRS Web site at IRS.gov/recovery.

5 Tips to Prepare for Next Year’s Tax Season

Few people enjoy thinking about taxes during the summer. But those who are willing to do a little prep work throughout the year can find tax time a bit less taxing. www.mylifeROI.com recommends these 5 Tips to Prepare for Next Year’s Tax Season:

1) Pretend You’re a Fortune 500 Company. Divide your year into quarters, or if it’s easier to keep track of, seasons:

• Summer – In the summer, you should start organizing your records. As of a few months ago, you actually filed your taxes. And what a relief that was. However, taxes never stop. You should make sure your filing system is intact and ready to go with the new year’s tax records, starting back in January. Make sure that the past 6 months look good and that you are ready to go for the rest of the year.
• Fall – Begin estimating your end of year annual income and taxable income. You should have a pretty good idea of your salary, hourly wages, commissions, bonuses, etc. This obviously won’t be exact, but you should have an approximate. This will let you know if you are behind or ahead on tax payments.
• Winter – The year is practically over (or is over depending on what part of winter it is!). Start preparing to file your taxes. Get all of your documents ready to go. Start gathering the different tax forms you will need. Separate receipts you will need from ones you won’t need.
• Spring – Actually file your taxes, now. If you have kept up to date over the past 3 seasons, you should be able to file relatively quickly! But, it’s not over. Continue on to “summer” and do it again!

2) Practice Good Record Keeping

What kinds of documents should you keep extra secure?

• Birth certificates for you and your family members
• Any wills that have been drafted or published for you (and your spouse)
• Stock and/or bond certificates for large holdings
• Deeds to any real estate holdings

3) Adjust Your Withholding on Your W-4

As discussed in the linked article, you usually want to adjust your w-4 to maximize your earnings, which in tail minimizes your refund or payment. The closer you can get to $0 owed the better.

There are a few thought processes:

• A tax refund is an easy way to save. It is, in a way, a forced savings plan. You probably wouldn’t have the willpower to save the money otherwise, so getting it all in one lump sum may help you apply it towards debt or towards a goal.
• A tax refund means you threw money away. Had you received the money you would have put it in an investment vehicle that pays interest. You gave the government a tax-free loan.

In the end, do what’s right for you.

4) Keep Your Receipts

The linked article will give you a lot more depth. But the gist of the article is that you should keep all important tax records filed for up to 7 years (different times for different kinds of documents).

An overview of a few of the forms you need to keep on file:

• Paycheck stubs
• W-2 Forms/1099 Forms
• Receipts for any items you can deduct if you plan to itemize
• Insurance and medical records
• Charitable records

5) Pay Your Taxes Before You File

You are required to pay your taxes. If you don’t believe me, click on the above link and see the awesome picture of Wesley Snipes.

Adjust your withholdings accordingly and make sure you pay your tax rates all throughout the year.

California issues IOUs

California taxpayers who are waiting on refunds will continue to wait. The Franchise Tax Board has announced: "all requests for direct deposit of a State income or franchise tax refund will be issued as a paper registered warrant." If you receive a registered warrant in lieu of payment, the State Treasurer will not redeem it for cash until it matures on October 2, 2009. However, some banks will accept registered warrants as cash, so you may be able to deposit it into a bank account (and let the bank deal with redeeming the warrant in October). FAQs about registered warrants are available on the State Controller's website.

What happens after I file?

The IRS provides information in an attempt to answer the question: What happens after I file? Included in this IRS page is information on the following:

• Refund information
• What records should I keep?
• Change of address
• What if I made a mistake?

California begins releasing refunds

Today, State Controller John Chiang announced he has begun releasing more than $2.8 billion in payments that were delayed in February due to the state's cash shortage. The Controller anticipates all of the delayed payments will be made within the next several weeks on a “first in, first out” basis, and March payments will be made as scheduled. For more information from the State Controller's office, please visit: http://www.sco.ca.gov/eo/fiscalissues/payments03-09.shtml

Where's my California refund?

State tax refunds for California taxpayers continue to be delayed. Individuals will receive interest due to the delay only if their refund is not issued within 45 days after April 15, or the date that your return is filed, whichever is later. You can check the status of your refund at: http://www.ftb.ca.gov/online/refund/index.asp You can check the status of your federal tax refund at: http://www.irs.gov/individuals/article/0,,id=96596,00.html.

Where's my refund?

If you are due a federal tax refund, you can check the status of your refund online. If you e-file, you can get refund information 72 hours after IRS acknowledges receipt of your return. If you file a paper return, refund information will be available within three to four weeks. When checking the status of your refund, have your federal tax return handy. To check your refund status, visit: http://www.irs.gov/individuals/article/0,,id=96596,00.html.

California Tax Refunds

The State Controller announced on Thursday, February 19, 2009, that once the budget plan provides the needed cash in the treasury, his office will work around the clock to get delayed payments out the door. For information on the refund payments, including FAQs, visit: http://www.ftb.ca.gov/refund_delay_2008.shtml.

Delay for California Tax Refunds

This week, the California FTB posted FAQs about the 30-day delay for all refunds (please see our post from Jan 16 for more details on that announcement at http://ty-llp.blogspot.com/2009/01/california-delays-payments-for-tax.html) FAQs include:

• Should I wait to file my return?
• Is it possible that I will be issued an IOU?
• Am I entitled to receive interest because of the delay?

The FAQs are available at: http://www.ftb.ca.gov/refund_delay_2008.shtml

California Delays Payments for Tax Refunds

State Controller John Chiang announced today he will begin delaying, for 30 days, payments for tax refunds for individuals and businesses that overpaid their 2008 taxes. He is also delaying many other payments, including payments to businesses for services and products they provide to the State; assistance to more than 1 million aged, blind and disabled Californians; and disbursements to State agencies that use the payments to fund public services ranging from public safety to health and welfare. Chiang said: "Delaying these payments will get us through the next few months, but it will not solve the problem. Only the Governor and the Legislature have the power to avoid this drastic and painful path. They have a narrow window of opportunity to quickly enact a sound solution to bridge the State’s cash and budget deficit, and I urge them to seize it." The complete press release is available at http://www.sco.ca.gov/eo/pressbox/index.shtml.