by David Hess, CEA, J.D., Senior Vice President – Financial Advisor, Wealth Enhancement Group

To promote access and affordability of a college education, various tax breaks and the 529 plan qualified expenditure changes were designed to help parents and students pay for school.
 
The new Tax Benefits for Education section on www.IRS.gov includes tips for taking advantage of long standing education deductions and credits. On the above stated site, you will find a special section highlighting frequently asked questions about the 529 plan and two changes that allow for qualifying expenditures that previously did not exist:

• To pay for computer technology needs during 2009 and 2010 – for example, a laptop, internet access fees and related services.
  
  
• More parents and students will be able to use the American opportunity tax credit (modifying the current HOPE credit for 2009 and 2010) to pay for a portion of the cost associated with the first four years of college. The max annual credit of $2,500 may be available for a taxpayer who pays $4,000 or more in qualified expenses.

This credit does have phase out provisions for high income taxpayers, but the limits ($160,000married/ $80,000 single) are higher than they used to be with the Hope credit.
 
The credit is partially refundable (i.e. negative income tax) in that if it exceeds your actual tax liability, the IRS will cut you a check. I recommend that you visit the new Tax Benefits for Education section on www.IRS.gov for more information and talk with your financial advisor to find out how this credit can help you.