Preparing for college? Maximize your use of education tax credits.
The Hope and Lifetime Learning Credits are valuable tax-savers for college education expenses.

The Hope Credit is a tax credit for college students in their first two years of college. It provides a tax credit of up to $1,650 on the first $2,200 of college tuition and fees. You can claim the Hope Credit on your tax return if you, your spouse, or your dependent are a first-year or second-year college student, is enrolled at least half-time at an eligible education institution, and you were responsible for paying college expenses.

The Lifetime Learning Credit is a tax credit for any person who takes college classes. It provides a tax credit of up to $2,000 on the first $10,000 of college tuition and fees. You can claim the Lifetime Learning Credit on your tax return if you, your spouse, or your dependents are enrolled at an eligible educational institution and you were responsible for paying college expenses. Unlike the Hope Credit, you need not be enrolled at least half-time. Even if you took only one class, you may take advantage of the Lifetime Learning Credit.

Sell your house tax free.
You may be able to avoid paying taxes on $250,000 of capital gains when you sell your house, if you meet a few requirements. Married couples can exclude up to $500,000. Remember, proper planning can save you tens of thousands of tax dollars.

Save for your child’s education.
Save in a tax-advantaged way. Look at all the available options and choose what is likely to give you the most money for college at the least tax cost. Among the choices to investigate are Section 529 plans, educational savings accounts, and education savings bonds.

Consider tax-exempt investments as a means of cutting your income tax.
If you're in the higher tax brackets and are seeing your investment profits taxed away, there is a good alternative to consider: tax-exempt mutual funds.

Max-out your tax-favored retirement accounts and retire early.
Most retirement accounts give you the double benefit of a tax deduction for your contribution and tax-deferred growth within the account. Find the best retirement plan for your situation, and make the maximum allowable contribution each year.

Don’t spend your pension distributions.
If you receive a lump-sum distribution from a qualified plan, consider deferring taxation on the distribution by rolling it into an IRA or another qualified plan within 60 days if you are under the age of 59-1/2.

Take a write-off for your small business.
Accurate record keeping is mandatory. Once you open your business and start generating revenues, you can write off many of those initial startup costs at tax time. The rules for taking advantage of these deductions are not as straightforward as they are for your business's ongoing expenses.

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