Education

• The Taxpayer Relief Act of 1997 provides tax credits for families with students in higher education. The Hope Scholarship (American Opportunity) Tax Credit, Lifetime Learning Credit and student loan deductions give tax breaks to those with low incomes, as determined by the IRS for that tax year, who may not otherwise afford to attend school. Also, education costs are allowable withdrawals from Individual Retirement Accounts (IRAs). For the person filing the return, a spouse or dependent, a tax credit for that year can be taken on your return. Qualifying expenses include tuition and applicable fees, but not books, room or board. In addition, you may qualify to deduct all or a portion of the interest paid on your student loan.
  
  

Individual Retirement Accounts

• The Taxpayer Relief Act of 1997 created the Roth IRA. This retirement account allows contributions that are not deductible, up to a maximum as determined by the IRS for the tax year. This is an advantage to those who have reached their maximum contributions of deductible funds. The interest you earn is tax-free and so are the qualified withdrawals that are taken for retirement purposes. Therefore, your compounded interest grows without incurring a tax penalty when you withdraw it after you turn 59.5 years old and it has been in the account for at least five years.
  
  

Estate and Gift Tax

• In 2006, the first $1 million dollars of a decedent's estate was exempted from federal taxes imposed by the Taxpayer Relief Act of 1997. Any amount over that incurred a 55 percent tax. Legislation passed in 2010 temporarily exempted estate tax up to $5 million per person or $10 million per couple. A tax of 35 percent will be charged on any amount over the exemption. If the new law is not renewed by 2013, the estate tax will revert back to the 2006 levels.
  
  

Capital Gains and Child Credits

• Capital gains rules changed under the Tax Reform Act. If you own a property for more than one year, versus the old provision requiring 18 months, you may incur lower capital gains taxes. A single individual may earn up to $250,000 in gains on the sale of the principal residence without having to pay income tax, while a married couple qualifies for a $500,000 exclusion.
  
  In addition, a child tax credit for dependent minors was implemented. You will need the Social Security number of each dependent who qualifies to take the credit on your tax return.