Social security is going to be under siege as baby boomers hit retirements. Fortunately, many baby boomers have put away piles of cash in 401ks and IRAs. Regardless, most people fail to do all they can in this regard. In an attempt to motivate us taxpayers to save as much as we can for retirement, Uncle Sam is dangling tax credits before us like the proverbial carrot.
The tax credit in question is the Retirement Savings Contributions Credit. Qualify for it and you may be eligible to take a credit of $1,000 for singles and $2,000 if you’re filing jointly. The credit is eligible for those that make contributions to 401ks and retirement vehicles. The amount of the credit is determined on a sliding scale based on how much you make and contribute.
You can claim the retirement savings tax credit:
1. Individual taxpayers with incomes of $25,000 or less.
2. Individual taxpayers that are head of households and make $37,500 or less.
3. Married couples filing jointly who make $50,000 or less cumulatively.
There are some very minor restrictions regarding who is eligible for the tax credit. First, you have to be older than 18. Second, you can’t be a full time student. Finally, another dependent can’t claim you as a dependent on their tax returns.
Importantly, this tax credit is in addition to other tax advantages you gain from piling money into a retirement account. With a 401k, for instance, you can pound in pre-tax earnings, which cuts down your adjusted gross income for the tax year. Once you figure out your taxes, you can then deduct another $1,000 or so for the tax credit. Put another way, saving for your retirement is a no brainer.
The federal government is practically begging you to put away money for retirement. With this tax credit, there is absolutely no reason to fail to comply.
Tax credits are available for qualified education expenses paid by taxpayers who are continuing their education. A qualified education expense is defined as an expense that is paid during the tax year for fees and tuition requied by an eligible educational institution for the purpose of student enrollment and attendance. It does not matter how the expenses are paid, only that they are valid. Expenses that are not considered valid are those paid for room and board, medical expenses, student health fees, transportation, personal living expense, insurance, course-related books, supplies, equipment, or any non-academic activity or non-credit course. This basically leaves only tuition costs as valid education expenses. If a deduction for education expense is taken on any other portion of the personal tax return, it cannot be used in the calculation of a Hope or Lifetime Learning credit. If a Pell grant or a scholarship is received, the taxpayer must deduct the amount of the grant or scholarship from qualified expenses. Since most Pell grants and scholarships are taxable, taxes may be imposed, but the tax credit can be taken as well. Taxpayers can use any prepaid amounts made on the current years tax return if all other guidelines have been followed. The Hope credit and the Lifetime Learning credit cannot be taken jointly. A taxpayer must select one or the other. The Hope credit can be taken only in the first two years of college as defined by the educational institution. It cannot total more than $1500. The Lifetime Learning credit is set at a maximum of $2000 for 2005. It cannot be taken together with the Hope Credit, even if expenses exceed Hope limits. If this is the case in the first two years at the educational institution, the taxpayer may include the excess on Schedule A. Educational credits are limited by the level of income and the adjusted gross income totals. When calculating these credits, taxpayers must consider their income and expense levels and their current student status, since the Hope credit expires after the second year of higher education. Excess expense deductions can be taken under the itemized deduction expenses on Schedule A, if a Hope or Lifetime Learning credit is at the maximum. Taxpayers and eligible dependents of taxpayers are allowed to take these credits. In general, the expenses of dependent students are claimed by their parents or legal guardians. Students who cannot be claimed as someones dependent can take the education credit even if they are not paying the expenses. Everyone who can take the credit should do so. Higher education can be very expensive, so anyone furthering their education in order to improve their future financial situation should take advantage of the relief provided by the education tax credit
Both Richard Chapo & Capil009 are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Richard Chapo has sinced written about articles on various topics from Finances, Tax Deductions and IRS Tax. Richard A. Chapo is with BusinessTaxRecovery.com - providing information on .. Richard Chapo's top article generates over 74000 views. to your Favourites.
Capil009 has sinced written about articles on various topics from Business Plan, Online College and Information Technology. Did you find this article useful? For more useful tips & hints, Points to ponder and keep in mind, techniques & insights pertaining to Google Ad sense, Do please browse for more information at our website :-. Capil009's top article generates over 18100 views. to your Favourites.