<p>Ok so I understand that this will be a better Hope Credit, it will cover like 2500 a year for the first 4000 paid for tuition and books...now if I will be paying for school with Stafford loans, will I count to get this 2500 credit? And this will be received with my 2010 income tax return? My parents combined dont even make 40k, so I know I'm good in that department.</p>
<p>Now I hear about this 4000 tax credit for those who are willing to do 100 hours of community service, I am very willing to do this, however when will this start? And is this different from the 2500 American Oppurtunity Tax Credit?</p>
<p>So let me get this straight, If I pay for school up to 4000 with loans/my own money, I'll be able to receive the 2500 a year. Now what if I do the community service hours, will that be an additional 4000, or would that then phase out the 2500 a year? I'm confused, please can someone clarify this for me. And I'd assume this will all start for the Fall 09 semester correct?</p>
<p>First if you are a dependent for tax purposes your parents are the ones that must claim the tax credit. if they are low income they may not benefit from the entire credit as it is not entirely a refundable credit so there must be some tax liability to get all of the credit.</p>
<p>A tax credit may or may not mean you get money paid to you, depending on whether it is refundable or not refundable. There are 2 types of tax credits. A refundable tax credit means that even if you have no tax liability you get money. So if you are eligible for a $1000 refundable tax credit you get $1000 even if you have no tax liability. A non refundable tax credit mean you get a credit against your taxes which reduces your taxes, but do not get extra money if your taxes are less than the credit. For instance with a refundable tax credit of $1000, if your tax liability for the year is $600 your liability would be reduced to $0 using the 1st $600 of the credit, and you would get and additional $400 ‘refund’ paid to you giving you the entire $1000 credit. With a nonrefundable tax credit of $1000, if your tax liability is $600 your liability would be reduced to $0 but you would not get a $400 refund, so you would only get $600 of the $1000, a reduction of your taxes.</p>
<p>To make life complicated the new tax credit is a combination of refundable and non refundable. Up to $1000 is a refundable credit. So to get the full benefit of the $2500 you (or probably your parents) must have a tax liability of at least $1500 to save $1500 in taxes and to get the $1000 refundable part of the credit. If there is no tax liability then you would only get the refundable portion of $1000. If there is some tax liability then they would get reduced tax liability and possibly some refund. If your parents do not make $40k they may not have sufficient tax liability to benefit from the entire credit.</p>
<p>Tuition/fees/books paid for with loans are usually eligible for the credit (they were for the Hope so I am guessing they will be for this one).</p>
<p>As far as I know the other credit with the community service requirement is something that was talked about but has not been passed. I don’t know if it is still under discussion or not.</p>
<p>Sigh … another fine example of our government at work … can’t they just figure out a way to help folks without making it next to impossible to figure out how it might actually help?</p>
<p>The more difficult they make it, the less likely people will be to actually claim the credit…so they save money…and make themselves look great. Gotta love our politicians who prefer the appearance of goodness over actual improvement.</p>
<p>C’mon, folks. These credits are not really all that difficult to figure out - and they’re not designed to discourage participation. Things like income phase-outs are there so the help goes to those who need it most. And if the credits were easier to get, more people would cheat (“cheat” being a euphemism for “steal,” when it comes to taxes).</p>
<p>If you’re going to get something for nothing, expect to make at least a little effort.</p>
<p>If you use a tax prep software, it usually figures out for you what you need to do. You plug in the numbers…it helps decide what option is going to yield the best result. If you’re going to net $1000 or more…it might be worth it to pay the small amount that the tax prep software costs. If your income is below a certain level, you can actually do this at NO cost on the IRS website.</p>
<p>No software to download or buy. Most of the places that let you efile federal for free, do charge for state. And some charge ALOT (imo). Turbotax is much more expensive for the deluxe version (no I don’t wort for taxact, just a satisfied customer for many years)</p>
<p>A couple of points:
The American Opportunity Tax Credit can be claimed for all four years of undergrad study. The Hope credit it replaces could only be claimed for the first two years.</p>
<p>For parents that want to get money back now simply adjust the number of allowances on your W4.</p>