IRAs

The American Opportunity Credit

The American Opportunity Credit applies to a broader range of taxpayers, the credit can be applied towards four years of post-secondary education instead of two years, and adds required reading materials to the list of qualified expenses.

The maximum annual credit allowed is ,500 per student. The full credit is available to taxpayers whose modified adjusted gross income is ,000 or less for individuals and 0,000 or less for married couples filing jointly. Expenses such as tuition, course materials, and supplies necessary for enrollment or attendance are considered qualified expenses. A computer may qualify as a qualified expense if it is needed as a condition of enrollment or attendance at the educational institution. If you have questions about what does or does not qualify, be sure to contact your tax advisor for guidance.

 

Lifetime Learning Credit

The Lifetime Learning Credit could reduce taxes up to ,000 per year for qualified educational expenses. It is most useful for graduate students, part time students, and those who are not pursuing a degree because there is no limit on the number of years the lifetime learning credit can be claimed for each student.  The American Opportunity Credit may be available for one student and the Lifetime Learning Credit for another.

 

For 2012, the maximum education tax credit is limited to the tax you pay on your return. The credit is non-refundable. While the education tax credit phases out, the full credit is generally available to eligible taxpayers whose modified adjustedis less than ,000 for individuals, or 4,000 gross income for married couples filing a joint return in 2012.

 

Tuition and Fees Deduction

If your income is too high to claim the American Opportunity Credit, you may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. The tuition and fees deductions can reduce the amount of income subject to tax by up to ,000. The tuition and fees deduction is not allowed if any of the below conditions are true:

  • Your filing status is married filing separately,

  • Another person can claim an exemption for you as a dependent on his or her tax return,

  • Your modified adjusted gross income is more than ,000 (single) or 0,000 (married/joint), you were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes, or

  • You or anyone else claims an education credit for expenses of the student for whom the qualified education expenses were paid.

 
Savings Plans

Section 529 of the IRS Code allows taxpayers to prepay or contribute to certain specified savings accounts to pay for a student's qualified higher education expenses. Distributions from 529 plans are tax-free if they are used to pay for qualified higher education expenses including tuition, required fees, books and supplies. If the designated student attends school at least half-time, room and board expenses also qualify. These plans offer significant flexibility if a student's education plans change - be sure to discuss these options with your tax professional.

 

Total contributions for the beneficiary of a Coverdell Education Savings Account cannot be more than ,000 in any year, no matter how many accounts have been established so it is important that all contributors to these accounts for a child communicate with one another. Contributions to a Coverdell Education Savings Account are not deductible. However, the principal grows tax-free until distributed.

 

Estate and Gift

For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is ,120,000, up from ,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed ,040,000,