Uncle Sam gives you more credits
Thanks to the Taxpayer Relief Act of 1997, you may owe the Internal Revenue Service a lot less money this year.Skip to next paragraph
Subscribe Today to the Monitor
And there are more ways to get help when doing your taxes.
That's the good news.
The bad news is you have to pay attention.
You can't "go by rote and just pull out last year's return," says tax preparer David Silverman, an enrolled agent and author of "Taxes for Dummies."
The most important change is the new child credit that takes effect this year, says Mr. Silverman.
For each child under 17, parents can take $400 directly off their total tax liability.
Tax credits differ from standard deductions in that they are subtracted directly from your total, net tax liability, rather than just reducing your taxable income, Silverman says.
So paying $400 less in taxes is a lot more attractive than paying tax on $400 less income.
Next year, the credit increases to $500.
The credit only applies to married couples earning less than $110,000, and is phased out between $110,000 and $120,000. For single parents the limits are $75,000 and $85,000.
The child tax credits come in addition to the personal exemption of $2,700 for each family member, Silverman says, though those exemptions also have income limits.
The exemptions reduce the amount of income you owe taxes on, rather than lowering your net tax bill.
They are lower for couples with incomes above $186,800; singles, above $124,500; married people filing separately above $93,400; and head-of-household filers who earn above $155,650.
The second most significant tax change this year, Mr. Silverman says, are new education credits: the Hope Credit and Lifetime Learning Credit.
The Hope Credit benefits parents with kids in college by reducing their tax bill directly by $1,500 for each child in the first two years of undergraduate study. Students have to be enrolled in at least half-time courses to qualify. Eligible tuition and expenses must be reduced by any grants or scholarships the student earns.
The Lifetime Learning Credit does the same for adults attending undergraduate, graduate, or professional studies courses.
There's no limit to how may years you can claim the credit.
It refunds 20 percent of qualified college tuition and expenses up to $1,000 per return -no matter how many students are in the household.
The education credits phase out for couples earning more than $80,000 and disappear at $100,000. For singles, the limits are $40,000 and $50,000.
Colleges are providing a new form 1098E that lists what expenses qualify, though so far not all schools provide the amounts.
If yours doesn't, call the registrar's office to get the amount, says Karl Baumann, an accountant in Wellesley, Mass.
In addition to these credits, taxpayers can write off as much as $1,000 of interest paid on school loans. This deduction is only available during the first 60 months of loan payments, and the loans have to be for at least half-time study.
The deduction also has income caps: $60,000 to $75,000 for couples and $40,000 to $55,000 for singles.
People claimed as dependents and married couples filing separate returns cannot claim any of these education benefits.
"It really means you have to play with who's a dependent," says Mr. Baumann
Parents who have a child in college, "are usually over the income limit. But the child could benefit," he says.