By: Robert A. Johnson
Thanks to adjustments in inflation, some educational tax breaks now have a slightly more generous income-eligibility level. In the first two years of vocational school or college, the Hope Credit will be able to help the parents with the cost of higher education provided that the student meets certain requirements. The Hope Credit is worth up to $1,650 per student.
Am I Eligible?
If your dependent child is planning to attend college, you are able to claim the Hope Credit if your dependent child is:
• Enrolled in 1 of first 2 years of college – generally freshman and sophomore years.
• Enrolled in a program leading to a certificate, degree, or other recognized educational credit
• Taking at least ½ of the normal full-time workload for their particular course of study during one academic period in 2007.
• Free of felony convictions for either the possession or sale of illegal substances at the end of the school year of 2007.
• Did not have any expenses that were used in figuring a Hope Credit for more than 1 previous tax year. You are not allowed to claim the Hope Credit if:
• The modified adjusted gross income, or MAGI, is over $57,000 or, if you are filing jointly the MAGI must be $114,000 or more.
• You are married and are filing separately.
Lifetime Learning Tax Credit
If you want to know if you will be able to utilize the Lifetime Learning Tax Credit, you may be able to if:
• Your MAGI is between $47,000 and $57,000 if you are filing as a single taxpayer,
• Your MAGI is between $94,000 and $114,000 if you are filing a joint tax return.
You are not permitted to file a Lifetime Learning Tax Credit because your MAGI is $57,000 or more. It must be $117,000 or more if you are planning to file a joint tax return.
Eligibility
You can usually claim the Lifetime Learning Tax Credit when you are paying qualified tuition and other related expenses of a college education for an eligible student who is your spouse, yourself, or a dependent if you are able to claim him or her as an exemption. You do not have a limit of the number of years for which you are eligible for the Lifetime Learning Tax Credit. You are not able to claim this credit if your tax filing status happens to be married filing a separate return. You may be able to claim the Lifetime Learning Tax Credit on your tax returns of up to $2,000 for not only qualified tuition but also for other related expenses per family. This credit reduces the amount of tax that you may have to pay Uncle Sam.
Eligible Educational Institutions
These eligible institutions are any university, vocational school, college or another postsecondary education institution that is able to participate in various student aid programs that are administered by the U.S. Department of Education
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By: Robert A. Johnson
With so many people finding themselves facing foreclosure the American government finally stepped in to help out a little. Although nothing could be done about saving the homes, there was The Mortgage Forgiveness Debt Relief Act of 2007 which was enacted on December 20, 2007.
What this means is that some or all of the debt that is left from a foreclosure can be forgiven for the 2007 tax return and the following two years. Before this act was passed, any debt that was left after the foreclosure of a home was basically considered taxable income and had to be claimed on that year’s income taxes.
This act only applied to debt that was obtained due to the purchase of a person principal residence or to improve the residence. The Mortgage Forgiveness Debt Relief Act of 2007 applies to the 2007 tax return along with the 2008 and the 2009 tax return. When people had to file 2007 taxes they still had to report the debt on their tax return. The form 982 has to be filed out and attached to the rest of your 2007 tax return.
Form 982 will have to be filed out for those who are filing for this relief on their 2008 and 2009 taxes. The form can be easily obtained by downloading it from IRS.gov. It is also good to know that as long as the loan amount that you are seeking help on was less then two million dollars it will be covered. If married couples are filing separately then it is one million dollars.
Just keep in mind that this form and this act cannot be used for second homes or rentals that a person had which were foreclosed on. There can be extensions on your 2007 tax return filed though in order to give extra time to pay the taxes on that debt since it is likely to be a good amount of money.
While this doesn’t solve the problem of not having a home any longer, it is at least a good amount of help to make sure those who lost their homes have an easier time moving on as they will not have to pay taxes on that debt.
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By: Robert A. Johnson
If you are a homeowner and bought a house in 2007, you can deduct PMI (Private Mortgage Insurance) on your yearly taxes. The Internal Revenue Service has added a line on Form 1098 that you received from your mortgage lender that shows how much mortgage insurance you paid in 2007.
As an example, if you bought a house in 2007 and made a down payment of less than 20%, you are probably paying for mortgage insurance. If your income is $100,000 or less, you can now deduct your entire private mortgage insurance expense or PMI, or other mortgage insurance you purchased through the Veterans Association, Federal Housing Administration or Rural Housing Administration.
This PMI deduction is important in filing your 2007 tax return or 2007 late tax return. Homeowners can even state this deduction and note it as a prior year tax deduction. Remember, however, that the 2007 PMI deduction will phase out once your adjusted gross income reaches $110,000. Basically, if any homeowner puts down less than 20%, they are considered a mortgage risk. Mortgage and finance companies are utilizing piggyback loans and private mortgage insurance to ensure their risk.
A piggyback loan example would be something like this. Say you bought a house for $100,000 and received a mortgage loan in 2007 for $80,000 and were only able to put down $10,000. The other $10,000 you need was in essence a second mortgage or piggyback loan. In prior tax years if you had a standard mortgage and a piggyback mortgage, you could deduct the interest you paid on both mortgages, but not your PMI. This changed for 2007 with some restrictions.
The 2007 tax deductions for PMI are only applicable to mortgages that closed in tax year 2007. You would have to refinance your home in 2007 if your loan closed in 2006 to qualify for the PMI tax deduction. There are also some income restrictions—your 2007 adjusted gross income must be $100,000 or lower. For homeowners who have standard mortgages and piggyback loans, this tax law only applies for the 2007 tax year. The likelihood of Congress renewing this 2007 PMI tax deduction remains unknown.
To find out if you qualify for the 2007 PMI tax deduction, check with your accountant or follow the guidelines on the tax software you use at home. In the long run, experts say that homeowners should stay away from piggyback loans; however, the upside to this is that insurance premiums will most likely go down in the coming years.
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By: Robert A. Johnson
In the last few years, there have been many families with children who received some important tax relief because of an increase of the Child Tax Credit. This is really a Reduction in the taxes that you pay and not simply a Deduction from your taxable income. For the 2007 tax return, the minimum earned income amount that is used to figure the additional child tax credit has been raised to $11,750.
Child Tax Credit
The Working Families Tax Relief Act was passed by Congress in 2004. It kept the Child Tax Credit at $1,000 for each qualifying child through the year 2010. You must stay within the income thresholds of your filing status. You must use Tax Form 8812, the Additional Child Tax Credit, in order to figure out your additional credit.
Claiming the Child Tax Credit
In order to claim this credit, you must use the 1040 or 1040A tax forms ONLY. This credit is limited if your MAGI is above a specific amount. The amount will vary depending upon your filing status.
• Married filing separately - $55,000
• Married filing jointly - $110,000
• All others - $75,000
Additionally, the Child Tax Credit is usually limited by the amount of income tax that you owe as well as owing any alternative minimum tax.
If the amount on your 2007 tax form for your Child Tax Credit is more that the specified amount of income tax that you owe, you may be eligible to claim some if not all of the difference as an “Additional” Child Tax Credit. This may give you a refund even if you don’t owe any tax. On your 2007 tax form, the total amount of both the Child Tax Credit as well as any Additional Child Tax Credit is not able to exceed the maximum of $1,000 for each child that qualifies.
Claiming the additional child tax credit
In order to claim this credit, follow the steps below:
1. Make sure that you have figured the amount of your child tax credit, if any.
2. If the answer was “Yes” on lines 4 or 5 on the Child Tax Credit Worksheet in Form 1040, 1040A or 1040NR instructions use form 8812 to see if you qualify for the additional child tax credit.
3. If you have put an additional child tax credit on line 13 of Tax form 8812, then carry that figure to Form 1040 – line 68; 1040A – line 41; or Form 1040NR – line 62.
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By: Robert A. Johnson
Chances are if you still have not filed your 2007 tax return, you are going to face some penalties. Even in a case where you have filed an extension you should be aware that you could still be assessed penalties on any taxes owed. The deadline each year is the same, April 15th, except when it falls on a weekend and in that case, the tax filing deadline will be the following business day.
Returns.
The tax code allows you three years to file a tax return if you either do not owe taxes or are due a refund. After three years, you forfeit all rights to any prior year tax refund money owed to you. On the other hand, if you owe the IRS they can go back as far as six years of prior tax returns and under special circumstances, with internal approval, even further.
Penalties
If you are to be penalized you will probably fall into one of these three categories.
1) You have filed your 2007 tax return on time but could not for whatever reason pay all of the tax you owed.- In this situation you will be charged a .5% penalty of the remaining tax due for each month that it goes without being paid. This can increase to 1% of the tax due if the tax remains unpaid after several attempts to collect. If you can show, justification for not paying, the penalty may be avoided.
2) You have a late tax return - If you go past the deadline and file a late tax return, when you owe tax, then you can be charged a late file penalty. Like the above, if you can show just cause, it may be avoided. However if not this is the stiffest of penalties at 5% of the tax you owe for each month it goes past due. This is a 4.5% late file penalty coupled with the .5% late fees. The longer this continues, the more it will cost you as the late fee continues to accrue and at five months, you can owe as much as 47.5%! (4.5% * 5 months + 25% late fee) An important side note: The minimum penalty once you pass the 60-day mark is the smaller of $100 or 100% of the tax owed.
3) You have filed an installment plan for your 2007 return - Even with an installment plan you will be assessed late fees. If you file your return on time and then filed an installment agreement, which the IRS accepted you would then be charged a .25% late fee for every month that you are past due; this is instead of the .5% on a typical late return.
4) No matter which of the above categories you may find yourself you will also have to pay interest on the federal taxes owed. This is generally the federal rate plus 3%. This interest is refigured every three months and compounds daily. The moral of this story is to file on time and pay as much as humanly possible if you owe any taxes. There are many ways to file your taxes each year, CPA, tax preparation companies and online. Be proactive, get your current returns in on time, and file any prior year’s tax returns as soon as you can. If you wait, too long the IRS can file a return for you based on the income information they have on file for you. When this happens, you can rest assured that the IRS will not give you any preferential filing status or deductions.
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By: Robert A. Johnson
President Bush signed the 2007 economic stimulus package, what does that mean for you? For starters it could mean a tax-free check for you to spend anyway you see fit. The estimates are the minimum check will be three hundred for single person and twelve hundred for couples. With an additional three hundred dollars possible for each eligible child. “Great,” you may be thinking, “where do I sign up?” Well, you don’t, at least not exactly.
How to Get Your Stimulus
The only way to receive your 2008 economic stimulus check is to file a 2007 tax return. For most people that will not be a problem, if you work at all in this country you should make enough that you are required to file a tax return each year. However, there are a few folks who slip through the cracks on this one and need to be aware of what they should do.
Social Security
If you draw social security, you could still qualify for the 2008 stimulus check. What you will need to do is either go into the office of a local tax preparation office or, if you are internet savvy, go online to the IRS website and view the list of providers offering free tax filing for people whose income falls below $54,000 a year. If you are going into the office, take with you the 1099 the Social Security Department sends out each year showing how much you drew. One important note; some people receive supplemental security income or SSI, this is not eligible income for rebate check purposes.
Low Income
The federal guidelines say that if you make less than $8,750 per year for singles and $11,250 you do not have to file a tax return. Well for the economic stimulus check, you had to make at least $3,000. That means if you previously fell in one of the first two categories you more than likely did not file. So in order to receive your check you are going to need to file before a 2007 income tax return before October 15th deadline. Update, if you still have not filed a tax return you will be able to file a late return in January and still receive an economic stimulus check if you are eligible.
Income Tax Return
Many may be concerned that by filling out a tax return they will have to pay taxes normally not assessed to them. This is not the case the only reason you must file one is to assess your eligibility for the stimulus check and determine exactly how much it will be.
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By: Robert A. Johnson
EIC (Earn Income Credit) is here to stay.
The earned income credit is for the low to moderate income individual or couple. This is a credit you can take to reduce or eliminate the amount of tax you owe. In some cases, it also provides a healthier return. Unlike some other credits you can receive on your tax return, this is one of the few that is refundable. In other words if you have very little or no tax to reduce you will receive the balance of the EIC on your federal return.
Income Qualifications
To qualify for the earned income credit you must have either children or an income that falls below a certain level. For instance, a single person with an income of under $12,590 they can receive up to $428. This of course will be calculated according to their exact income on the basis of income times 7.65% for incomes up to $6,999 when the credit begins to phase out.
For families with children the qualifications become more complex. Below is a sample break down of the maximum benefit:
- One qualifying child will equal $2,853
- Two qualifying children equals $4,716
- No children $428
Now keep in mind these are the maximum benefit amounts and will be affected by your gross income. These numbers are up from the previous year by anywhere from one thousand to two thousand dollars of earned income. It is prudent to double-check your 2007 tax return for any errors that may have occurred. Alternatively, if you are filing late you need to know all the possible deductions and credit changes that were made for the 2007 tax filing year.
Qualifying Child
To get the maximum EIC that you are entitled to you need to also be aware of what constitutes a qualifying child. There are situations where this can be complicated as in the case of an aunt or uncle claiming a niece or nephew. However the federal guidelines are:
1. - Age- According to the IRS website under age 19 at the end of 2007, A full-time student under age 24 at the end of 2007, or permanently and totally disabled at any time during 2007, regardless of age.
2. Relationship- A child may be your daughter, son, stepdaughter, stepson, grandchild, great-grandchild, sister, brother, stepsister, stepbrother, half sister, half brother, niece, nephew, great niece, great nephew or any descendant of the above listed. In some cases, foster children and adoptive children are also qualifying children, provided they are placed with you by a court.
3. Residence- Your child of course must be a resident of the United States except for temporary absences due to school, jail, hospital or other stays outside the country that are considered to be temporary, case in point military service.
This is a break down of the main components of claiming the EIC credit for the 2007 tax year. There are other special instances that may fall outside these qualifications. Always check for the most current updates when filing current or prior year’s tax returns.
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By: Robert A. Johnson
Adoption is near and dear to my heart, as I was an adopted infant. I have researched adopting hard to place kids, and was happy to find that with some of the struggles that are unique to adopted families, the expense of bringing that dream home is offset with a tax credit. While the cost of raising a child cannot be calculated to make it financially profitable, having a tax adoption credit available makes adoption much more achievable for many families that long for a child. If you have started the adoption process, you know the costs associated can be overwhelming.
The tax laws for adoption credit are fairly generous. Any direct expenses, such as travel, attorney, court and other legal costs, are deductible. The adopting parent (s) can claim an adoption credit of up to $11,650 for 2008 for each eligible child. In order to qualify for this, you must have paid for adoption expenses out of your own pocket, any you must have adopted an eligible child. This means any child 17 or younger, or any US citizen or resident alien who is physically or mentally unable to care for themselves.
For adopting parents who adopt a special needs child, the full amount of the adoption credit can be claimed, regardless to what year the adoption became final. For children who are US citizens, you may take the adoption credit in the year after your expenses were paid (if the adoption was not final), or the same year if it was finalized. For foreign adoptions, the tax credit is only available the year the adoption was finalized. You must get an Adoption Taxpayer ID number if no Social Security number is issued.
The max dollars you claim for this credit is limited by your actual expenses as well as the phase out range for income. If you had one failed adoption attempt, you can write off your expenses for both processes once you have a finalized adoption. If you are filing a prior tax return, or any 2007 tax form, it would be best to hire an accountant with expertise in this tax credit area to make sure you get your full tax credit if you have adoption expenses. There are some expenses you can’t claim with this credit, such as surrogate mother expenses, so make sure you are doing things right.
This is encouraging for families who want to find a way to make a difference in the lives of a child, or to add to their family. Adoption is a beautiful gift, and now you can find a way to afford it. Don’t limit yourself to where you find that perfect addition. The different states often have children available that need a family, and it is much less expensive than overseas adoption. If you want to go overseas, though, the incentives on your taxes take the sting out of the money it costs. There is no way to put a price on your child, so go change a child’s world, and the 2007 tax adoption credit will help you do it.
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