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2006 Tax Act
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Higher education
is an investment in everyone's future. According to recent statistics,
parents only save an average of $9,956 for their children's higher
education.Money Magazine reported that nearly
half of the parents have no savings at all. In 20 years, the average
four year college education is expected to cost $115,000 for public
schooling and more than $250,000 for a private education according
to a recent data from the College Board. The continuing rise in
college costs, however, leaves many parents wondering how they'll
fund their children's education.
To help you plan for present or
future education expenses, there are a number of tax breaks and
education incentives for students and their families. You may
be eligible to take advantages of these money-saving benefits.
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,a nonrefundable credit, can be
claimed against federal income taxes up to $1,650 per student,
per year, for qualified tuition and related expenses for the first
two years of a college education. The $1,650 maximum HOPE credit
amount and the AGI phase-out ranges are indexed for inflation.
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Lifetime
Learning Credit, a nonrefundable credit, can
be claimed against federal income taxes up to $2,000 of education
costs each year. The credit can be used for the education beyond
the first two years of college, or taking classes part-time to
acquire or improve job skills, the credit is equal to 20% of first
$10,000 tuition and fees.
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Qualified tuition and
related expenses: Include tuition and fees required to
be paid to an eligible educational institution as a condition
of enrollment or attendance of an eligible student. Books, supplies,
insurance, travel, meals & lodging, and similar personal,
living or family expenses do not qualify. A student may use HOPE
in only two different tax years, and can't use Lifetime Learning
Credit in the same year. Under HOPE, a student must be enrolled
at least half-time. The Lifetime Learning Credit has no half-time
rule -- even a single class qualifies.
Who is Eligible?
You, your spouse, or any child claimed as your dependent. If the
child is your dependent, the money is considered to be paid by
you even if it is paid by the child.
Phase Out. Both
Credits phase out as your modified AGI is between $90,000 and
$110,000 for joint returns ($45,000 and $55,000 for single filers)
in 2006.
* The HOPE Credit is computed
on a per-student basis, while Lifetime Learning Credit is computed
on a family or per-return basis.
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Taxpayers can contribute up to
$2,000 in 2006 per account to pay the educational expenses of
a designated beneficiary who is under age 18. A phase-out begins
at modified AGI of $95,000-Single ($190,000-MFJ).
If the distribution exceeds qualified
expenses, a portion of the distribution will be taxable if the
distribution are more than the beneficiary’s adjusted qualified
education expenses for the year, and that amount may also be subject
to the 10% early distribution penalty.
In addition, you may now make early withdrawals from traditional
and Roth IRAs without tax penalty to pay for qualified higher
education expenses.
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Beginning in 2003, up to $2,500
of loan interest on qualified education loans for college tuition,
books and supplies. Both the limit on the numbers of months for
interest payments and the restriction that voluntary payments
of interests are not deductible will be eliminated.
To qualify for the deduction,
your modified AGI on a joint return is between $105,000 and $135,000.
($50,000 and $65,000 for single filer).
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