Hope Tax Credit

If you want to see a father of two openly weep, just mention the cost of college. In all aspects, the costs are outrageous. In some areas, a four year college experience can cost more than a house. Of course, every parent wants their sons and daughters to get a college education, so what can you do? Well, the Hope tax credit is one step you should investigate.

When filing taxes, there are two main ways of saving money on your taxes returns. The first is by claiming deductions from your gross income, lowering the amount of taxable income and possibly even lowering yourself into a different tax bracket. The other method is to receive a tax credit, meaning the tax amount itself is reduced rather than the gross taxable income. Obviously, tax credits trump deductions in every instance.

The Hope tax credit is a tremendous idea, but it could be larger. Essentially, you are allowed to claim up to $1,500 as a tax credit for the first $2,000 spent on a college education during each of the first two years of attendance. The credit can be claimed if you are putting yourself or your spouse through college. It can also be claimed if you are putting a dependent through higher education, to wit, your son or daughter. 

In practical terms, the Hope tax credit gives you a nice break on your taxes. If you are paying to send your daughter to her first year of college in 2006, you can claim the credit. It works like this. Assume you or your accountant prepares your taxes. At the end of the day, you owe $20,000 for the year and have paid in $15,000 through payroll and such. Instead of owing the IRS $5,000, the Hope tax credit would reduce the amount to $3,500. As you can see, it is a valuable dollar for dollar reduction of your tax liability.

The Hope tax credit can take the edge off of writing that tuition check each year. My only beef with it is the amount. Compared to the cost of college, $1,500 is not much of a break even if it is a tax credit. 

more : http://www.businesstaxrecovery.com/Hope_Tax_Credit