Paying on Student Loans? Deduct the interest

A deduction of up to $2,500 may be allowed for amounts paid for interest on qualified student loans on line 33 of Form 1040. Only the actual amount of interest paid in the current year may be deductible. You may not claim the deduction in any year in which another taxpayer claims you as a dependent or if your filing status is Married Filing Separate.

A qualified student loan is a loan you took solely to pay qualified education expenses at an eligible education institution.

Use the Student Loan Interest Deduction Worksheet to see if the deduction amount is reduced or eliminated based on your Adjusted Gross Income.

Received my income tax refund - Now what?

Congratulations on receiving your refund. Now it's time to get your financial house in order. Below are some priorities:

$10,000 reserve fund - You've heard this one many times. Few taxpayers have an adequate emergency fund that could be used for living expenses in the event of a major crisis, like job loss. Having three to six months in a reserve fund is recommended. With $10,000 at least it's a starting point.

Credit Card Debit - Now that the new credit card rules are in place, it's imperative that your credit card debt be managed. A credit card charging 18% interest will be difficult to pay off.

401k - Failure to fund your 401(k) can be like throwing away free money because you could be passing up the employer match. The contribution withheld from your paycheck also reduces your taxable income.

Can I claim my child as a dependent?

To claim someone as a dependent that person must either be your qualifying child or qualifying relative.

To be a qualifying child:

1. The child must be related to you.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student, (c) any age permanently and totally disabled.
   
   A child is permanently and totally disabled if both of the following apply.
   
   • He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
   • A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death
3. Child must live with you more than six months.
   

Get organized

The sooner you get organized, the sooner you may receive your refund. Take time today to gather all of your receipts, credit card and bank statements and anything you have spent money out of pocket. Put these documents in a folder or box so you can keep track for tax purposes. You can organize your files in the following categories:

• Income – pay stubs, bank and investment statements
• Medical – expenses and out of pocket premiums
• Donations – cash and non-cash
• Real Estate – Mortgage statements, property tax payments, settlement statement if you're a first-time home buyer in 2010 and have not yet claimed the credit.
  
• Child Care – receipts, provider's address and EIN
• Tax Correspondences – Ohio and Local Estimated statements
• Student Loans – tracks loan interest
• Payments – receipts for tax deductions
• Mileage Log - needed if you use your personal vehicle for work

During January you will receive the following documents in the mail and you'll be able to file these into their respective categories:

• W-2's
• 1099's
• Mortgage interest statements
• Bank interest statements
• Real estate tax statements
• Investment statements
• Receipts for charitable donations

Taking time now will have it easier to prepare this year's return. Here are the IRS record keeping guidelines.