Back-to-School Tips for Students and Parents Paying College Expenses

IRS Summertime Tax Tip 2012-25

Whether you’re a recent high school graduate going to college for the first time or a returning student, it will soon be time to head to campus, and payment deadlines for tuition and other fees are not far behind.

The IRS offers some tips about education tax benefits that can help offset some college costs for students and parents. Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

  • American Opportunity Credit. This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education at an eligible institution. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.
  • Lifetime Learning Credit. In 2012, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.

You can claim only one type of education credit per student in the same tax year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.

  • Student loan interest deduction. Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, you may be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

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Five Important Tips on Gambling Income and Losses

IRS Summertime Tax Tip 2012-24

Whether you roll the dice, bet on the ponies, play cards or enjoy slot machines, you should know that as a casual gambler, your gambling winnings are fully taxable and must be reported on your income tax return. You can also deduct your gambling losses…but only up to the extent of your winnings.

Here are five important tips about gambling and taxes:

1. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes such as cars and trips.

2. If you receive a certain amount of gambling winnings or if you have any winnings that are subject to federal tax withholding, the payer is required to issue you a Form W-2G, Certain Gambling Winnings. The payer must give you a W-2G if you receive:

  • $1,200 or more in gambling winnings from bingo or slot machines;
  • $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
  • More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
  • $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
  • Any other gambling winnings subject to federal income tax withholding.

3. Generally, you report all gambling winnings on the “Other income” line of Form 1040, U.S. Federal Income Tax Return.

4. You can claim your gambling losses up to the amount of your winnings on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions.’ You must report the full amount of your winnings as income and claim your allowable losses separately. You cannot reduce your gambling winnings by your gambling losses and report the difference. Your records should also show your winnings separately from your losses.

5. Keep accurate records. If you are going to deduct gambling losses, you must have receipts, tickets, statements and documentation such as a diary or similar record of your losses and winnings. Refer to IRS Publication 529, Miscellaneous Deductions, for more details about the type of information you should write in your diary and what kinds of proof you should retain in your records.

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IRS Alters Letter-Forwarding Policy for Missing Taxpayers

The Internal Revenue Service is making changes in its letter-forwarding program and no longer intends to try to locate a missing taxpayer who may be entitled to a retirement plan payment or other financial benefit.


The IRS instead expects companies and individuals to use missing person locator services, such as those available over the Internet to find the missing taxpayers.

In Revenue Procedure 2012-25, the IRS revised prior rules governing its letter-forwarding program. The program is available to private individuals, as well as state and federal agencies, who are attempting to locate missing individuals. Under Policy Statement P-1-187, the IRS established a program whereby it would forward a letter to a missing individual on behalf of a private individual or government agency if this action is for a humane purpose and there is no other way to relay the information to the individual.

Revenue Procedure 94-22 allowed an individual, company, or organization that controls assets that may be due a taxpayer, including plan administrators, sponsors of qualified retirement plans, or qualified termination administrators of abandoned plans under the Department of Labor’s Abandoned Plan Program attempting to locate missing plan participants, to make a written request to the IRS to use its letter forwarding program.

However, under current budget constraints, the IRS has decided to get out of the business of providing free detective services. “Since the release of this revenue procedure in 1994, several alternative missing person locator resources, including the Internet, have become available,” it said. “Accordingly, the Service will no longer consider locating a missing taxpayer who may be entitled to a retirement plan payment or other financial benefit from an individual, company or organization to be a humane purpose for which the Service will provide letter-forwarding services.”

Under the new revenue procedure, the IRS said it will no longer provide letter-forwarding services to locate a taxpayer that may be owed assets from an individual, company, or organization.  The letter-forwarding program is now limited to situations in which a person is trying to locate a taxpayer to convey a message for a humane purpose as defined in Section 4 or in an emergency situation.

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