It’s not too early to be thinking about doing your income taxes. W-2 forms will be mailed by employers the first week of February. The earlier you file, the earlier you get the refund check to help pay your bills! If you wait until the last minute to do your taxes, save this article with your pay stubs until it’s ripe! Unless you were born with a silver spoon in your mouth, you have to work, go into debt, or depend on a spouse or parents to help cover school expenses. Here are a few tips on how to stretch your dollars at income tax time.
Maine Property Tax Circuit Breaker
Here’s one you won’t find on your income tax return, and renters qualify for it as well as homeowners. Taxpayers with joint household income of up to $32,000 will be reimbursed for half of the amount of property tax they paid over 4 percent of household income, and 100 percent of the amount over 8 percent of income, up to a maximum refund of $1,000.
Renters are also eligible, because the program figures 18 percent of rent paid is actually property taxes shifted onto them by landlords. So renters, if you earned less than $32,000 in 2003, and 18 percent of the total rent you actually paid is more than 4 percent of your household income, you should file for a refund. Get the forms for the Maine Homeowners and Renters Property Tax Relief Program from your municipal finance department or town clerk. It’s worth the trouble.
Student Loan Interest
For 2003 a deduction up to $2,500 can be claimed on your federal income tax forms for qualified education loan interest paid. A qualified education loan means any indebtedness incurred by the taxpayer solely to pay tuition and fees, room and board, books and supplies required for school. These expenses may be incurred on behalf of the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer. The deduction is reduced for joint filers with modified Adjusted Gross Income between $100,000 and $130,000, and for single filers between $50,000 and $65,000.
Enrollment at a university that provides a two-year or four-year program leading to an associate or baccalaureate degree is required. Students must be enrolled at least half-time (6 hours at USM) in a degree granting program (e.g., undeclared and non-degree students may not qualify). Married taxpayers must file jointly to claim the deduction.
The write-off for student loan interest is an adjustment to income, which means it can be used by filers taking the standard deduction, as well as those who itemize deductions.
New Rates for 2003
Each year the IRS makes an inflation-based adjustment to the figures required to calculate the income tax. Called “tax indexing,” this includes changes in the personal exemption, Standard Deduction, and tax bracket amounts.
Personal Exemption
For tax year 2003, the amount allowed for each personal exemption is $3,050. This is a $50 increase from the 2002 amount.
Standard Deduction
Each taxpayer is entitled to claim the greater of the Standard Deduction or Itemized Deductions. A Standard Deduction may be claimed instead of reporting Itemized Deductions on Schedule A. The amount varies with filing status. If you have a lot of Itemized Deductions, they may add up to more than the Standard Deduction shown below.
Filing Status 2003
Married, jointly $9,500
Head of household $7,000
Single $4,750
Married, separate $4,750
Itemized Deductions include: medical expenses over 7.5 percent of Adjusted Gross Income; state income, real estate, and personal property taxes; qualified mortgage interest; charitable contributions; miscellaneous employment, investment or related expenses. Tax rates are found in the brochure that comes with the forms, and are slightly more favorable than last year. See also: http://www.irs.ustreas.gov/individuals/
Hope Tax Credit
For 2003, a maximum credit of $1,500 is available for qualified tuition and fees (not books or living expenses) paid on behalf of the taxpayer, taxpayer’s spouse, or dependents. The credit allowed is 100 percent of the first $1,000 spent plus 50 percent of the second $1,000 spent. Students must be enrolled at least half-time in a degree-granting program for at least one semester during the year.
The credit is reduced for joint filers with modified Adjusted Gross Income between $83,000 and $103,000, and for single filers with income between $41,000 and $51,000. There is no Hope Tax Credit for married persons filing separately. See IRS Publication 970 to calculate your credit.
Michael S. Hamilton is an Associate Professor of Political Science.