For the vast majority of us that fall somewhere between the super-wealthy and the poverty level, a major factor that influences our education investment choices is the availability of tax breaks for specific education investments and expenses.

As of 1998, a new group of tax benefits has become available to those who are pursuing higher education for themselves, their spouse, or their dependents. These include:

• the Hope Scholarship Credit
• the Lifetime Learning Credit
• Coverdell education savings accounts
• the deduction for interest on qualified student loans
• deductions for higher education expenses

In most cases you have to choose among these benefits, since the same student is not permitted to use two different education tax breaks in the same year. Nevertheless, these tax breaks can help defray the high costs of pursuing an education.

Three additional types of tax breaks are worth mentioning here: employer-provided educational assistance, qualifying work-related education deductions, and a deduction for student loan interest.

Under a qualified employee benefit plan, up to $5,250 per year can be provided to an employee as reimbursement for educational expenses (includes tuition, fees, books, supplies, and tools). The tax law does not require the education to be related to the job, or part of a degree program, although some employers may impose these requirements under their particular plan. Also, covered educational expenses may include graduate level course work, even courses leading to a professional degree.

If you don't receive employer-provided assistance under the type of plan described above, or if the assistance you receive is more than $5,250 per year, there is another tax law provision under which you may receive a tax break for education. Under the work-related education rules, education of any type (whether or not it leads to a degree, and whether it is technical, vocational, undergraduate, graduate, or professional) will be deductible if certain requirements are met.

Finally, there is an education tax break that allows taxpayers with moderate amounts of income to deduct interest due and paid on any qualified education loan. The maximum deductible amount of the deduction is $2,500. However, the deduction is phased out and eventually eliminated for higher-income taxpayers.

There are certainly many more related details and issues to consider. For additional information on tax breaks for education, click here.

Tax Guide 2008

Net Operating Losses
Many small businesses have recently suffered major losses due to the hurricane Katrina. Although it may be small comfort, sole proprietors will normally be able to deduct the loss from their total income from other business ventures or from any salary, wages, or other earnings.

If the business loss exceeds the total income for the year, any unused portion of the loss, which is known in the tax laws as a net operating loss (NOL), can be used to offset income and reduce taxes in another year. This may result in an immediate source of cash to help with recovery.   For more details, please review Net Operating Losses.

Keeping Good Records
Preparing to meet your annual tax obligations is a year-round process. For example, everyone who pays taxes is required to keep accurate, permanent books and records so they can determine the various types of income, expenses, gains, losses, and other items that affect their income tax liability for the year.   To help get you on the road to better tax organization, please read Keeping Good Records.

What To Expect if You Are Audited
Hopefully, this will not be an issue for you, but you should have some awareness of the IRS audit procedures. The IRS has several different levels of audits. If questions arise about your math, items seem to be omitted from your return, or your figures don't match those on your W-2s, 1099s, or 1098s, the IRS may simply request a correction or explanation by mail.   To explore this topic further, take a look at  What To Expect if You Are Audited.

Tax News

Safeguarding Records

With the approach of the hurricane season, the IRS is encouraging taxpayers to safeguard their hard-to-replace tax records and financial documents. According to the IRS, a few simple steps can help taxpayers and businesses protect financial and tax records in case of hurricanes and other disasters.   For more on this important issue, please read IRS Encourages Taxpayers to Safeguard Records from Hurricane Damage.

401(k) Fee Structures Examined

For many workers, participating in a 401(k) account is the biggest piece of a retirement savings plan (as well as the easiest way to lower taxable earnings). Because of their popularity and importance, these savings vehicles are highly regulated by lawmakers and the government. And one aspect of the plans is receiving renewed attention from Congress because of its effect on the value of your 401(k) plan--the service fees.   For more information on this important topic, please read Congress Probes Fee Structures of 401(k) Retirement Plans.

Closing the Tax Gap

The Treasury Department and the IRS announced on August 2, 2007, a comprehensive multi-year timeframe for taking action to reduce the $300 billion tax gap--the difference between what taxpayers owe and what they actually pay.   For further details, please read Feds Unveil Comprehensive Plan to Close $300 Billion Tax Gap; More Audits for Small Business Owners.


Tax News Archive

For more news stories and features on federal, state and payroll tax issues and how they may affect you, read the listing of articles in the archive.

• FREE electronic filing with paid processing.
  
  
• CompleteTax prepares both your federal and resident state returns.
  
  
• File electronically and you may qualify to use our Refund Anticipation Loan (RAL) service, which lets you get your refund FAST!
  
  
• Our useful Tax Guide provides tax tips and straightforward answers to your tax questions.
  
  
• If you owe a balance on your taxes, you can conveniently pay it by credit card. This service is available for federal taxes and certain states.
  
  
• Take advantage of FREE e-mail support, or an online chat service that gets your technical questions answered for a small fee.
  
  
• Learn how to file an Amended Return.