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March 31, 2007

If you have kids, it's wise to have your returns prepared together. With the "kiddie tax" now applying to 17-year olds, you often can't do the kids returns without having done the parents.

Once the kids are off to college, the tax law's "education credits" make it worthwhile to coordinate parent and student returns.

The "Hope Credit" offers up to $1,650 in tax reduction if you have qualifed higher eductation costs. The "Lifetime Learning Credit" offers up to $2,000 of tax savings. Both of these credits start to phase out when adjusted gross income hits $90,000 on a joint return, or $45,000 otherwise.

If parent income exceeds the phase-out amount, they might save money by foregoing the dependency exemption for the student. If they do, the student can claim the education credits. If the student has income from a summer job or school job, she might be able to use the credit when Mom and Dad can't.

You claim these credits on Form 8863.

This is another installment in our series of 2007 filing season tips. Look for a new one each day through April 17.

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