Re: 2009 Planning: Educational Credits and Deductions

Dear Client:

As a taxpayer with higher education costs, you should be aware of the many tax benefits that are available to you.
Generally, educational assistance such as scholarship, fellowship, or employer-provided educational benefits are
excludable from income. For education costs not covered by educational assistance, tax benefits include the Hope
scholarship credit (also known as the American Opportunity credit for 2009 and 2010) and the lifetime learning
credit. Alternatively, you may have the option of deducting qualified tuition and fees expenses "above the line."
These credits and deductions are coordinated with the exclusion for distributions from education savings plans, such
as, Coverdell Savings Accounts and qualified tuition programs. For taxpayers who take out a loan to pay for their
education, a deduction is available for the student loan interest.

The amount of the American Opportunity tax credit is computed as 100 percent of the first $2,000 of qualified
tuition and related expenses plus 25 percent of the next $2,000 of such expenses, for a total maximum credit of
$2,500. The lifetime learning credit is generally available for 20 percent of education expenses up to $10,000. For
taxpayers who do not itemize, an above-the-line higher education tuition deduction can be claimed in 2009 for up to
$4,000.

Each education credit and the deduction have adjusted-gross-income phase out limitations. In addition the education
credits are coordinated with the deduction and Coverdell Savings Accounts and qualified tuition programs so that
taxpayers cannot realize duplicate tax benefits for the same dollars of education costs. Because of the variety of
tax benefits and the variations as to eligibility and the definition of qualifying education expense, some or all of the
benefits may apply to you. Every taxpayer should review their tax plan in order to take maximum advantage of the
tax savings for education.

For instance, a taxpayer generally should elect the Hope scholarship credit rather than the exclusion from income
for distributions from a Coverdell ESA. However, a taxpayer may be better off electing the exclusion in situations in
which the student incurs relatively lower tuition and fees and higher expenses of other kinds (such as expenses that
qualify for the exclusion, but not for the credits). Also, because the credits are phased out when a taxpayer's
modified adjusted gross income exceeds a specific level, it may be more advantageous to forego the exemption for
a dependent student and have the student claim the education credit on their own return.

Determining the best alternative for you and your dependents requires an analysis of your expected costs,
resources, and income. We can advise you on the best course of action. Please call our office at your earliest
convenience.

Sincerely yours,