Everything Finance

• 529 College Savings Plans grow tax deferred and withdrawals are tax free when used to pay for qualified higher education expenses. Additionally, many states offer taxpayers deductions for contributions into their 529 plan accounts.
• The Hope Tax Credit provides up to a $1,800 tax credit per eligible student. This credit, which grew by $150 from the previous year, may be claimed for college freshmen or sophomores.
• The Lifetime Learning Tax Credit provides a tax credit of up to $2,000 per family for higher education expenses. Students in any year of college or graduate school or taking continuing education courses may be eligible.
• The Tuition and Fees Tax Deduction may reduce taxpayers’ taxable income by as much as $4,000 for tuition expenses and related fees.
• The Student Loan Interest Tax Deduction may exclude up to $2,500 from taxable income for eligible taxpayers who paid student loan interest during 2008.

Students attending eligible institutions in Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin may be eligible to claim increased credits or an enhanced deduction for college costs in tax year 2008.

While taxpayers are encouraged to consult their tax advisor for individual tax guidance, Sallie Mae offers students and families these general tax filing tips to help them maximize their savings:

• Earn rewards for purchases of tax software or tax preparation services. Members of Upromise, a free program that helps students and families save money for education expenses, can earn cash rewards when they purchase TurboTax. Visit http://shop.upromise.com/mall/tax08 for more information.
• E-file for free. Simple federal tax returns may be e-filed at no cost by using TurboTax Federal Free Edition. More information is available through Sallie Mae’s tax center at www.SallieMae.com/taxcenter.
• Understand the income limits and restrictions on how education tax credits and deductions can be combined. For example, the Tuition and Fees Deduction cannot be combined with the Lifetime Learning Tax Credit, but the Student Loan Interest Deduction can be used in combination with any other education-related benefit. IRS Publication 970, “Tax Benefits for Education,” available at www.irs.gov, provides full details.
• Gather the right supporting documents. To calculate the Student Loan Interest Deduction, taxpayers need to obtain form 1098-E from their loan servicer. Sallie Mae customers may download their form securely at www.SallieMae.com/taxcenter. Anyone claiming one of the credits or the Tuition and Fees Deduction will need Form 1098-T from their college or university.

Families planning ahead for the 2009 tax year should be aware of changes enacted as part of the American Recovery and Reinvestment Act of 2009 economic stimulus package that will help make the investment in higher education more affordable at tax time next year. Under this new law:

• For tax year 2009, the American Opportunity Tax Credit will expand the Hope credit from $1,800 to $2,500 and allow families to use the credit for up to four years of college instead of only the first two. For the first time, lower-income taxpayers who, when filing their 2009 tax forms, do not have a tax liability, may also benefit. Because the new credit will be partially “refundable,” they may qualify for a payment from the federal government of up to $1,000.
• Account owners of tax-advantaged 529 college savings plans will be able to count the purchase of a computer for a beneficiary college student as a qualified education expense in 2009. 529 college savings plans allow families to save money for higher education while earnings grow federally tax deferred and can be used to pay for the cost of college.