EDUCATION/RETIREMENT

Educator Expenses
The Internal Revenue Service advises teachers and other educators to save their receipts for books and other classroom supplies. They will be able to deduct up to $250 of such expenses again this year.

The deduction is available to eligible educators in public or private elementary or secondary schools. To be eligible, a person must work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide.

An educator may subtract up to $250 of qualified out-of-pocket expenses when figuring adjusted gross income (AGI). This deduction is available whether or not the taxpayer itemizes deductions on Schedule A.

The IRS suggests that educators keep records of qualifying expenses in a folder or envelope with a label such as “Educator Expense Deduction,” noting the date, amount and purpose of each purchase. This will help prevent a missed deduction at tax time.

Education Incentives
The Hope Credit applies only for the first two years of post-secondary education, such as college or vocational school, and it can be worth up to $1,650 per eligible student, per year. It does not apply to graduate and professional-level programs. You're allowed 100 percent of the first $1,100 of qualified tuition and related fees paid during the tax year, plus 50 percent of the next $1,100. Each student must be enrolled at least half-time for at least one academic period beginning during the year.

The Lifetime Learning Credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills.  If you qualify, your credit equals 20 percent of the first $10,000 of post-secondary tuition and fees you pay during the year for all eligible students, for a maximum credit of $2,000 per tax return. You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year.

To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both.  However, if the student was claimed as a dependent, the student cannot claim the credit. These credits are phased out for Modified Adjusted Gross Income over $47,000 ($94,000 for married filing jointly) and eliminated completely for Modified AGI of $57,000 or more ($114,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.

The maximum Tuition and Fees Deduction is $4,000 for those with Adjusted Gross Income (AGI) up to $65,000 and $2,000 for those with an AGI over $65,000 but not over $80,000. These AGI amounts are doubled for married persons filing jointly.

Distributions from Qualified Tuition Plans (QTPs) maintained by private educational institutions are excludible up to the amount of qualified educational expenses. This tax break had been limited to State-sponsored QTPs.

Child-Related Tax Credits
Child-related tax credits affect millions of individual tax returns. The existence of a "Qualifying Child" will determine whether an individual is eligible for the Child Tax Credit, Earned Income Credit and the Dependent Care Credit.

Retirement Plans / Individual Retirement Arrangements
For Tax Year 2008:

• The elective deferral limit for 401(k), 403(b) and most 457 plan participants rose to $15,500.  For SIMPLE plans, the limit rose to $10,500.
• The catch-up contribution limit for persons age 50 or older rose to $5,000 for 401(k), 403(b) and 457 plans and to $2,500 for SIMPLE plans.
• The phase-out range for IRA deductions for those covered by a pension plan begins at income of $52,000 ($83,000 if married filing jointly or a qualifying widow(er)). It still begins at zero for married persons filing separately.

For Tax Year 2008:

• The elective deferral limit for 401(k) will be $15,500
• 401(k) catch-up contributions will be $5,000
• SEP maximum compensation will be $225,000
• SEP minimum compensation will be $500
• SIMPLE maximum contribution will be $10,500
• SIMPLE catch-up contribution will be $2,500
• IRA maximum contribution will be $5,000
• IRA catch-up contributions will be $1,000