USEFUL INFORMATION ON TAXES FOR POOR STUDENTS

I have been doing the tax dance now for a couple of days, and have found out some important information. First, if you want your money back quick and painlessly, file electronically from any computer linked up to the net. Click on this link for information on CALIFORNIA STATE taxes.

Now, I have looked through this list and found that only the first link tells you that this service is FREE if you make less than $20,000 a year. Otherwise, the price ranges from about 5 to 10 bucks. No, I don't know why this varies other than viva Capitalism!

For info on the free filing, check these folks out. (Link takes you to one of several tax services)

(This is what they will tell you at the above address)--If you are an individual (as opposed to a business) AND your income (adjusted gross income) is $20,000 or less, Intuit provides WebTurboTax tax preparation and filing to you at NO CHARGE. This includes both federal and state returns, plus electronic filing. This service is provided under the Quicken Tax Freedom Project. If you meet the income guidelines, you must prepare your return through the Quicken Tax Freedom Project in order to receive this service at no charge. I have not done this yet, but I will and let you know the results!!

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Next, and very, very cool! You can finally deduct your tuition/books costs from your Federal Taxes!! If someone can claim you as a dependent, or if you are filing "married filing separately", or your adjusted income is $100,000 married or $50,000 single, stop now because you cannot claim the credit. Your folks may be able to collect it, though.

If you do not fall into the three catagories above, than the next step is to decide if you can claim the HOPE CREDIT or LIFETIME LEARNING CREDIT. The Hope Credit allows you to claim up to $1500 per student as long as that student is within the FIRST TWO YEARS OF POST-SECONDARY (i.e. college) SCHOOL. Secret little sneaky rule here that a felony conviction for possessing/distributing controlled substances disqualifies you…

Now if you have had a few years of post-secondary school, you can still (and forever) qualify for the Lifetime Learning Credit. Maximum is $1000 per year but since this is a 20% amount, you can claim up to $5000-you only get credit for $1000.

If you want information, check out the information on filing form 8863 with your federal taxes. I downloaded a PDF file called "f8863.pdf" free from the IRS page:

f8863.pdf

It is listed under the forms. You need a PDF reader, like Adobe Acrobat.

This file IS THE FORM YOU NEED TO SUBMIT!

Finally, I am a geologist not a tax preparer!! So, I tried to do thorough research, but double check with the powers that be. There are a lot of minor rules so do read the literature.

Hope this helps!!! Below is the official version of the rules of the "Education Tax Credit"

Education Tax Credits

The following two tax credits are available to persons who pay higher education costs.

* The Hope credit.
* The lifetime learning credit.

Rules That Apply to Both Credits

The amount of each credit is determined by the amount you pay for qualified tuition and related expenses for students and the amount of your modified adjusted gross income. These education credits are subtracted from your tax but they are nonrefundable. This means if the credits are more than your tax, the excess is not refunded to you.

If your filing status is Married filing separate return, you cannot claim the higher education credits.

What expenses qualify. The credits are based on qualified tuition and related expenses you pay for you, your spouse, or a dependent you claim on your tax return. In general, qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational institution. Fees for course-related books, supplies and equipment, and student activity fees are included in qualified tuition and related expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Qualified tuition and related expenses do not include the cost of insurance, medical expenses (including student health fees), room and board, transportation or similar personal, living or family expenses, even if the fee must be paid to the institution as a condition of enrollment or attendance.
Prepaid expenses. If you pay for qualified tuition and related expenses for an academic period that begins in the first three months of the following year, you can use the prepaid amount in figuring your credit. For example, if you pay $2,000 in December 1998 for qualified tuition for the winter 1999 semester that begins in January 1999, you can use that $2,000 in figuring your 1998 credit.

You cannot use any amount you paid in 1997 in figuring higher education credits for your 1998 tax return.

Dependent. A dependent is a person for whom you claim a dependency exemption. This generally includes your unmarried child who is under age 19 or who is a full-time student under age 24 if you supply more than half the child's support for the year. (See chapter 3 for details on dependency exemptions.)

Eligible educational institution. An eligible educational institution is any accredited college, university, vocational school, or other accredited postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Academic period. An academic period includes a semester, trimester, quarter, or any other period designated by the educational institution as a period of instructional time. For purposes of the education credits, an academic period begins on the first day of classes and does not include periods of student orientation, counseling or vacation.

No double benefit allowed. If you claim a deduction for higher education expenses on your tax return, you cannot claim a credit for those same expenses.

Adjustments to qualified expenses. If you pay higher education expenses with certain tax-free funds, you cannot claim a credit for those amounts. Tax-free funds could include scholarships, Pell grants, employer-provided educational assistance, veterans' educational assistance, and any other nontaxable payments (other than gifts, bequests, or inheritances) received for educational expenses. You can, however, claim a credit for expenses paid with the student's earnings, loans, gifts, inheritances, and personal savings.

If a student receives a tax-free withdrawal from an education IRA in a particular tax year, none of that student's expenses can be used as the basis of a higher education credit for that tax year. However, the student can waive the tax-free treatment. See Education IRAs in chapter 18.

Recapture of credit. If, in a later tax year, you receive a refund of an expense you used to figure a higher education credit, you may have to repay all or part of the credit.

Hope Credit

For expenses paid after December 31, 1997, for academic periods beginning after that date, you may be able to claim a Hope credit of up to $1,500 for the qualified tuition and related expenses paid for each eligible student. This credit may be claimed for only two taxable years for each eligible student.

Eligible student for the Hope credit. You can claim a Hope credit only for an eligible student who meets all of the following requirements.

1. Has not completed the first two years of postsecondary education (generally, the freshman or sophomore years of college).
2. Is enrolled in a program that leads to a degree, certificate, or other recognized educational credential.
3. Is taking at least one-half of the normal full-time work load for his or her course of study for at least one academic period beginning during the calendar year.
4. Is free of any felony conviction for possessing or distributing a controlled substance.

Amount of credit. The amount of the Hope credit is 100% of the first $1,000 plus 50% of the next $1,000 you pay for each eligible student's qualified tuition and related expenses. The maximum amount of Hope credit you can claim in 1998 is $1,500 times the number of eligible students. This means that you can claim the full $1,500 for each eligible student for whom you pay at least $2,000 for qualified expenses. However, the credit may be reduced based on your modified adjusted gross income. See Income Phaseout, later.

Example. Jon and Karen are married and file a joint tax return. For 1998, they claim their daughter as a dependent on their tax return and their modified adjusted gross income is $70,000. Their daughter is in her sophomore (second) year of studies at the local university and Jon and Karen pay $4,300 in 1998 for her tuition costs.

Jon and Karen, their daughter, and the local university meet all of the requirements for the Hope credit. Jon and Karen can claim a $1,500 Hope credit in 1998. This is the maximum amount allowed for 1998.

How to figure the Hope credit. The Hope credit is figured in Parts I and III of Form 8863. An illustrated example using Form 8863 appears later.

Lifetime Learning Credit

For expenses paid after June 30, 1998, for academic periods beginning after that date, you may be able to claim a lifetime learning credit of up to $1,000 for the total qualified tuition and related expenses paid during the tax year for all students who are enrolled in eligible educational institutions. Unlike the Hope credit:

1. The lifetime learning credit is not based on the student's work load. It is allowed for one or more courses.
2. The lifetime learning credit is not limited to students in the first two years of postsecondary education.
3. Expenses for graduate-level degree work are eligible.
4. There is no limit on the number of years for which the lifetime learning credit can be claimed for each student.
5. The amount you can claim as a lifetime learning credit does not vary (increase) based on the number of students for whom you pay qualified expenses.

Amount of credit. The amount of the lifetime learning credit is 20% of the first $5,000 you pay for qualified tuition and related expenses for all students in the family. The maximum amount of lifetime learning credit you can claim for 1998 is $1,000 (20% times $5,000). However, that amount may be reduced based on your modified adjusted gross income. See Income Phaseout, later.

Example. Bruce and Toni are married and file a joint tax return. For 1998, their modified adjusted gross income is $50,000. Toni is attending the community college (an eligible educational institution) to earn credits towards an associate's degree in nursing; she already has a bachelor's degree in history and wants to become a nurse. In August 1998, Toni paid $2,000 for her fall 1998 semester. Bruce and Toni can claim a $400 (20% ¥ $2,000) lifetime learning credit on their 1998 joint tax return.

How to figure the lifetime learning credit. The lifetime learning credit is figured in Parts II and III of Form 8863. An illustrated example using Form 8863 appears later.

Choosing Which Credit To Claim

For each student, you can elect for any tax year only one of the credits or a tax-free withdrawal from an education IRA. (See Education IRAs in chapter 18 for more information.) For example, if you elect to take the Hope credit for a child on your 1998 tax return, you cannot, for that same child, also claim the lifetime learning credit for 1998 or take a tax-free withdrawal from an education IRA for 1998.

Lifetime learning credit after Hope credit. You can claim the Hope credit for the first two years of a child's postsecondary education and claim the lifetime learning credit for that same child in later tax years.

More than one student. If you pay qualified expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope credit for one child and the lifetime learning credit for another child in the same tax year.

Who can claim the credit. In any one tax year, only one person can claim a higher education credit for a student's expenses. If you are paying higher education costs for your dependent child, either you or your dependent child