Paying for College: Student Loan Interest Deduction Explained

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet certain criteria related to annual income, a legal obligation to pay interest, and the amount of interest actually paid during the year one is filing.

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet criteria related to annual income, a legally-observed obligation to pay interest, and the amount of interest actually paid during the year in which one files.

Married couples can claim the interest deduction only when filing jointly. The IRS allows one to deduct up to $2,500 annually for any interest paid on student loans which meet federal requirements. Any amount of interest above the threshold of $2,500 doesn’t count, nor can any deduction exceed the actual amount of interest paid.

Interest generated via the various types of educational loans can qualify for the deduction, including: interest on the loan itself, interest on any consolidations, and interest accumulated via lines of credit. The most important qualifier for determining eligible interest involves the intention of money borrowed, any money was used for educational expenses is generally applicable.

Deductions Versus Credits

Tax deductions differ from credits. Credits reduce the total of tax owed whereas deductions reduce the amount of income which can be taxed. The Student Loan Interest Deduction can be taken for up to $2,500 of any interest actually paid in the previous tax year. Deductions lower one’s revenue by the amount of the deduction. Therefore, the actual amount of income tax is lowered along with the tax burden and total bill which one pays.

Forms

Appropriate filing procedures for the Student Loan Interest Deduction are claimed as an adjustment to income, and therefor do not need to be itemized. Filers cannot take such deductions on Form 1040EZ. However, the deduction can be taken on line 18 of Form 1040A or on line 33 of Form 1040, both of which can be submitted via the free IRS efile process.

The cost of college seems never-ending to someone in the doldrums of student loan debt. However, interest paid can often be replenished via a tax return for those who qualify, which helps ease the burden. As with most tax scenarios, understanding the proper filing procedures and following the correct protocol can contribute to a much larger tax reimbursement.

Citations:

Katei Cranford is a writer who shares her expertise of financial situations for students and graduates.

Obama Believes That Taxes Help In Debt Reduction

President Obama believes that the U.S. can reduce its $15 trillion-plus federal debt by generating revenue from the increase in taxes.

While attending the Business Roundtable talks Obama stated that along with finding ways to cut spending, revenue had to also be dealt with. He believes that the people of America understand that this must be done in order to solve the country’s financial problems.

Taxes will be on everyone’s minds at election time.

The opponents of Obama- Mitt Romney, Ron Paul, Newt Gingrich and Rick Santorum, all are in opposition of increasing taxes. They argue that the creations of jobs and the economy’s growth will not benefit from the tax increases.

The GOP Republicans have led the way in White House budget crises by opposing any hikes in taxes.

No matter what the election outcome is in November, December is sure to bring any tax increase issues to the forefront.

The end of the year will bring to an end the tax cuts that were signed by then-President George W. Bush, along with the recently signed payroll tax cut.
Obama’s desire is to end the tax cuts signed by Bush for those individuals making a yearly income of more than $200,000. All the while he is pushing for a rule that would require at least 30 percent of a millionaire’s income to be paid in taxes.

Obama claims that his only desire is to create a balanced approach to reduce debt, not creating huge tax increases.

It is believed that the economy can be stabilized by making moderate tax adjustments, and by doing this, America can be back on top in the future.

Proposed Changes From Taxes

The current administration’s proposed budget for 2013 includes some items from 2012 taxes with a wish list of ideas added. Although Congress isn’t obligated to accept all items on the list, in the past, it has accepted some of the ones proposed. Since the U.S. tax code has not had a major overhaul in more than two decades, some analysts expect public debates on everything from tax brackets to tax return filing.

Some of the proposed budget includes changes from 2012 taxes, including individual taxes, corporate taxes, international provisions, and manufacturing tax breaks. Although there are others, the ones listed are the most significant to the average American individual and American corporations. These plans are to be gradually integrated into the budget over the next decade.

Changes to individual 2012 taxes include cutting payroll taxes and gradually ending the tax cuts from the Bush administration. Other individual tax changes proposed include carried interest, the Buffet Rule for millionaires, and an itemized tax cap for those making more than $200,000 per year or families with incomes over $250,000. Some of the changes take place during the current year, so tax return filing may be more challenging. Taxpayers need to have up-to-date information before filing their 2012 taxes.

The administration would like to drop the 35 percent currently charged to corporations down to the upper 20 percent tax range. The United States now has one of the highest corporate tax rates in the world. Although this won’t change tax return filing for individuals, the change will lower what corporations pay from the 2012 taxes.

There are other changes from 2012 taxes that will affect tax return filing for American corporations. These include the administration’s proposal to close a loophole in sheltering overseas intangible property profits, moving expense deductions for companies that move their overseas operations back to the United States, adding a minimum tax on profits from overseas, and restricting tax deferrals from other countries.

Some of the proposed changes may affect 2012 taxes. Seek professional assistance from the IRS, a CPA, or tax return filing professional. If you choose to calculate your own taxes, update your software and research the most current tax codes before filing.

The Pitfalls Of Doing Your Own Taxes

Doing your own taxes might seem like an easy enough thing to pull off. You just get your W-2 form, put in the numbers and you are good to go. However, there can be more to doing your taxes than just simple math, and even that can be hard to do for some people. While it might not be fun to have to pay someone to do your taxes, it can save you a lot of headaches down the line.

You Could Get The Numbers Wrong

Doing your own taxes means inputting your own information. If you have a W-2 and you are using software, this should be no problem. However, if you are self-employed, or are doing taxes by filling out a form by hand, it can get a little tricky. Instead of knowing that you have made 5,294 dollars during the year, you guess and just say 5,000 dollars. The IRS is not going to like that you have under reported income.

Even if you do get the numbers wrong, but correct it, you can still find yourself in trouble. The IRS tends to audit returns more if there are a lot of eraser marks, or if the numbers look fudged. If you have to do it yourself, at least use software to do so.

You Might Miss A Deduction

A taxpayer doing their own taxes might not realize that the new computer software used for marketing your business is actually a deduction, or that part of your home utility bills can be deducted if you run your business in your home. Not knowing all the deductions that are available to you can leave you owing more to the IRS and that can hurt even more in the down economy

Conversely, the taxpayer who is going it alone might give a deduction that is not legal. A new grandfather clock placed in your office isn’t necessarily a deduction. Driving to a convention in Miami with your family is only partially deductible. Knowing what is a deduction and what is not can get you into trouble come tax time.

Poor Record Keeping Can Kill Your Chances

Having someone do your taxes could salvage a decent return if you don’t do well keeping your own records. A tax professional can clue you in to good software that can organize all your invoices and bills that are relevant to your taxes. Also, a professional might know where to go to get another W-2 form, or how to get another copy of a 1099.

If you have a professional doing your taxes, that person can go through your records and pick out the relevant expenses and income that should go on your return. Getting an audit can be easier to deal with knowing that some professionals will have some sort of audit defense service where they will go in front of the IRS with you for a fee.

Doing your taxes on your own should be a relatively easy venture. However, making even a minor mistake can wind up with you getting an audit of some sort. Missing a deduction, or not claiming all of your income due to poor record keeping, or thinking you could pull one on the IRS, can be even worse. If in doubt, go to a professional for advice.

Miles Walker blogs about car insurance quotes over at CarInsuranceComparison.Org. He recently looked at Arizona car insurance.

The Benefits Of Filing Your Taxes with FreeTaxUSA

FreeTaxUSA can now support the 42 US states where a state tax return is required.  Additionally it can also support the District of Columbia, Vermont, and Montana.  Taxpayers residing in states that do not require state returns still have the option of filing a 100% free federal return on the FreeTaxUSA website.  Each year, there are been new states added, with this being the first tax season in which all 42 of the states are available. This means that more taxpayers can file their state taxes electronic than in the past with this great online tax product.

There has been no change to fees for preparation of state taxes on FreeTaxUSA.  They remain one of the most economical in tax filing industry.  Services included with a state return are preparation of forms and e-filing directly to the department of revenue for that state.  Unlike many other companies, FreeTaxUSA clearly posts preparation fees on their homepage.  They also have no hidden fees, or upgrades that are mandatory.  The price listed on the homepage, is the same price the customer will pay.

In order to save time, the necessary information is imported from the customer’s federal income tax return to their state one.  This enables much of the state forms to be filled in automatically.  This reduces the amount of possible errors as compared to a return that has been handwritten.  Once the state portion is completed, all applicable forms preparation will be complete and the return will be ready to be e-filed.  Customer are offered free support in case there are questions or problems.

Green Tax Deductions

There are numerous ways in which you may recognize savings by way of green tax deductions. By making certain eco-friendly choices regarding your purchases or certain home modifications, you may be eligible for tax benefits while at the same time doing something good for the environment. Not only might the environment and your pocketbook be thanking you for your efforts, but you may be improving your home and lifestyle in the process. In many instances, you could be saving 30% of the cost of your purchases or up to a total tax credit of $1500, although certain purchases may … Read the rest

There are numerous ways in which you may recognize savings by way of green tax deductions. By making certain eco-friendly choices regarding your purchases or certain home modifications, you may be eligible for tax benefits while at the same time doing something good for the environment. Not only might the environment and your pocketbook be thanking you for your efforts, but you may be improving your home and lifestyle in the process. In many instances, you could be saving 30% of the cost of your purchases or up to a total tax credit of $1500, although certain purchases may not be governed by this limit.

Heating a Cooling Options

Before you run out and buy a new addition to your HVAC system, you should ensure the product you want to purchase falls within the guidelines of the green tax deduction requirement by visiting www.energystar.gov.  Items such as biomass stoves (stoves that burn biomass fuels), certain hot water heaters, geothermal heat pumps, air conditioning units, furnaces, and boilers could be included in the tax deduction, but you don’t want to spend a bundle of cash on a new unit only to realize that it isn’t eligible for the deduction you were expecting. Furthermore, installations of items such as solar panels and wind turbines which actually generate energy for your home can qualify for up to a 30% federal tax credit.

Home Improvements

There are a variety of home improvements for which you may be eligible when it comes to tax deductions. Work to improve heating and cooling efficiency through fixing cracks and aging seals in your home and the replacement of insulation are simple ways of reducing energy costs in your home while possibly making yourself eligible for a tax deduction in the process.

You may also realize tax savings in the form of energy efficient window replacement, door replacement, roof replacement, other energy loss reduction repairs or modifications, and even the installation of solar panels.

New Homes

Tax breaks are not limited to the renovation of dated homes.  If you’ve built a new more energy-efficient home before January 1st you may be eligible for tax incentives. According to the Energy Policy Act of 2005, if you’ve build a new home that is 50% more in energy savings over the minimum standard you could qualify for a $2000 tax credit.  Those homes which achieve just 30% more energy savings over the standard are still eligible for $1000 tax credit.

Conclusion

Tax deductions can be a great benefit for making environmentally friendly decisions. However, it is important that you fully understand how these deductions apply to you and your situation and ensure that you are making the proper purchases and eco-friendly modifications to meet the guidelines to be eligible for these deductions. It might be helpful to visit the Energy Star website at www.energystar.gov to learn more about available tax credits and terms. If you are still unsure whether the improvements or purchases you are interested in making will result in tax benefits, you may want to consult a tax professional before committing yourself and your money.

Sources:

U.S Environmental Protection Agency. U.S. Department of Energy. Improve Your Home’s Efficiency & Earn Tax Credits. November 16, 2010. http://www.energystar.gov/index.cfm?c=tax_credits.tx_index. December 24, 2010.

Anastacio Mindiola is an accomplished attorney and business owner. His company helps home and business owners protest property taxes in Houston and the surrounding counties. For more information on how you can lower your property taxes visit http://www.republicpropertytax.com.

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