Introduction
There are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the Hope credit and the lifetime learning credit, also referred to as education credits.

What is the tax benefit of the Hope credit?
For the tax year, you may be able to claim a Hope credit for qualified education expenses paid for each eligible student.

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The Hope credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you.

The Hope credit you are allowed may be limited by the amount of your income and the amount of your tax.

Hope and Lifetime Learning Credits - What’ New For 2008?
Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits.

Income limits for credit reduction increased. For 2008, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified Adjusted Gross Income (AGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your modified AGI is $58,000 or more ($116,000 or more if you file a joint return).

Hope credit. Beginning in 2008, the amount of the Hope credit (per eligible student) is the sum of:
100% of the first $1,200 of qualified education expenses you paid for the eligible student, and

50% of the next $1,200 of qualified education expenses you paid for that student.

The maximum amount of Hope credit you can claim in 2008 is $1,800 per student.

You may be able to take a tuition and fees deduction for your education expenses instead of a Hope credit. You can choose the one that will give you the lower tax.

Can you claim both education credits this year?
For each student, you can elect for any year only one of the credits. For example, if you elect to take the Hope credit for a child on your 2008 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2008.

If you are eligible to claim the Hope credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope credit for one student and the lifetime learning credit for another student in the same year.

What are the differences between the Hope and lifetime learning credits?
There are several differences between these two credits. For example, you can claim the Hope credit based on the same student’s expenses for no more than 2 years. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student’s expenses.

Hope Credit Lifetime Learning Credit

• Up to $1,650 credit per eligible student Up to $2,000 credit per return
• Available ONLY until the first 2 years of post-secondary education are completed Available for all years of postsecondary education and for courses to acquire or improve job skills
• Available ONLY for 2 years per eligible student Available for an unlimited number of years
• Student must be pursuing an undergraduate degree or other recognized education credential Student does not need to be pursuing a degree or other recognized education credential
• Student must be enrolled at least half time for at least one academic period beginning during the year Available for one or more courses
• No felony drug conviction on student’s record Felony drug conviction rule does not apply

Can You Claim the Credit?
The following rules will help you determine if you are eligible to claim the Hope credit on your tax return.

Who Can Claim the Credit
Generally, you can claim the Hope credit if all three of the following requirements are met.

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

What Expenses Qualify?
The Hope credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

Academic period. An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period.

Paid with borrowed funds. You can claim a Hope credit for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the Hope credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student’s account.

Student withdraws from class(es). You can claim a Hope credit for qualified education expenses not refunded when a student withdraws.

Qualified Education Expenses
For purposes of the Hope credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.

Eligible educational institution. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Certain educational institutions located outside the United States also participate in the U.S. Department of Education’s Federal Student Aid (FSA) programs.

Related expenses. Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.
No Double Benefit Allowed
You cannot do any of the following.

• Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a Hope credit based on those same expenses.
• Claim a Hope credit in the same year that you are claiming a tuition and fees deduction for the same student.
• Claim a Hope credit and a lifetime learning credit based on the same qualified education expenses.
• Claim a Hope credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account

(ESA) or qualified tuition program (QTP). See Coordination With Hope and Lifetime Learning Credits in chapter 7 (Coverdell ESA) and chapter 8 (QTP).

• Claim a credit based on qualified education expenses paid with a tax-free scholarship, grant, or employer-provided educational assistance.

Refunds. Qualified education expenses do not include expenses for which you, or someone else who paid qualified education expenses on behalf of a student, receive a refund. (For information on expenses paid by a dependent student or third party, see Who Can Claim a Dependent’s Expenses, later in this chapter.)

If a refund of expenses paid in 2008 is received before you file your tax return for 2008, simply reduce the amount of the expenses paid by the amount of the refund received. If the refund is received after you file your 2008 tax return, see When Must the Credit Be Repaid (Recaptured), later.

You are considered to receive a refund of expenses when an eligible educational institution refunds loan proceeds to the lender on behalf of the borrower. Depending on when you are considered to receive the refund, follow the above instructions or see When Must the Credit Be Repaid (Recaptured), later.

Amounts that do not reduce qualified education expenses. Do not reduce qualified education expenses by amounts paid with funds the student receives as:

• Payment for services, such as wages,
• A loan,
• A gift,
• An inheritance, or
• A withdrawal from the student’s personal savings.

Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student’s tax return in the following situations.
The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.

The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).

Expenses That Do Not Qualify:
Qualified education expenses do not include amounts paid for:

• Insurance,
• Medical expenses (including student health fees),
• Room and board,
• Transportation, or
• Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Sports, games, hobbies, and noncredit courses. Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. However, if the course of instruction or other education is part of the student’s degree program, these expenses can qualify.

Comprehensive or bundled fees. Some eligible educational institutions combine all of their fees for an academic period into one amount. If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. See Figuring the Credit, later, for more information about Form 1098-T.

Who Is an Eligible Student?
To claim the Hope credit, the student for whom you pay qualified education expenses must be an eligible student. This is a student who meets all of the following requirements.

The student did not have expenses that were used to figure a Hope credit in any 2 earlier tax years.

The student had not completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of college) before 2008.

For at least one academic period beginning in 2008, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.

The student was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of 2008.

It is recommended you contact your tax accountant or tax professional to determine if you qualify for the Hope Credit. For the complete rules and guidelines visit the IRS website

Do you have questions about the economic stimulus payments?  Did you miss the Oct 15 deadline to file?  Can you still file anyway? Here are the top five questions currently being asked about the stimulus payments.

Address Change
1. I have moved since filing my 2007 tax return. How will my payment reach me?

A. Filing Form 8822, Change of Address, with the IRS and a change of address notice with the U.S. Postal Service will help ensure that any mail from the IRS, including your stimulus payment check, is sent to your new address. If the check has already been mailed and you did not provide the IRS with an updated address, the check will most likely be returned to the IRS. You may call the IRS at 1-866-234-2942 to provide your new address so that steps can be taken to have the check reissued.

Payment Timing
2) When will I get my stimulus payment?

A. It will generally take 8-12 weeks after you file your return to get your stimulus payment.

The IRS has already issued stimulus payments, both direct deposits and paper checks, for most returns filed by April 15. The IRS will continue to issue payments through 2008 for returns filed after April 15. Please allow 8-12 weeks after filing your tax return before checking on the status of your stimulus payment. To check on the status of your stimulus payment, you may visit Where’s My Stimulus Payment?or call the toll-free Rebate Hotline at 1-866-234-2942.

3) It has been more than eight weeks since I filed my return and my payment has not arrived. Can the IRS trace my payment to find out what happened to it?

A. Yes. If it has been more than eight weeks since you filed your return and your payment has not arrived, please visit an IRS Taxpayer Assistance Center or call the toll-free Rebate Hotline at 1-866-234-2942. A list of all Taxpayer Assistance Centers in your state is available at Contact My Local Office.

4) I heard that the IRS has finished sending the stimulus payments. Is it too late to for me to claim mine?

A. If you missed the Oct. 15 deadline for filing an income tax return for a economic stimulus payment, don’t worry. You can receive a payment in 2009 by filing an income tax return when the filing season opens in January. The IRS will have more information shortly.

5) I filed after April 15 and the payment date for my Social Security number has passed. How long will it take for me to get my stimulus payment?

A. It will generally take 8-12 weeks after you file your return to get your stimulus payment.

truetaxfacts.com will continue to provide updates on important information regarding the IRS and the economic stimulus payments. 

source: irs.gov

For 2008, the IRS has changed the personal exemptions and standard deductions to account for inflation adjustments. They include more than three dozen tax benefits that will affect virtually every taxpayer. Whether you file your own taxes or hire a tax professional, it is important to understand the key changes when filing your 2008 tax return in early 2009.

Here are the key changes to the 2008 tax changes as defined by the IRS:

1. The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
2. The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
3. Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
4. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
    
   The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
5. The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500).  Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
6. The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
7. For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
8. Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007.  Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
9. Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007.  Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
10. The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

In these economic times it is a smart idea to take advantage of all tax incentives that you possibly can.