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Whether you're walking a tightrope or scribbling in your checkbook, balance is a good thing. And, one of the best ways to evaluate a company is to glance at its balance sheet to see what it owns with what it owes.
The balance sheet is a paragon of simplicity and is made up of three components: assets (the stuff it owns), liabilities (the money it owes), and shareholders' equity (the company's value to its shareholders).
Assets take two forms: short-term (or current) assets and long-term assets. Under short-term, there¿s good ol' hard cash. Then, there¿s something called "cash equivalents," which are assets like short-term bonds that can be sold so quickly, they might as well be cash. There you factor in inventory, which (if you're a reasonably competent business owner) you can sell to customers in return for--you guessed it--cash. (The raw materials a company owns to make that inventory also falls under this category.)
Long-term assets are things that are harder to convert into cash. (Think real estate and equipment.) Long-term assets depreciate, meaning they lose some value over time. Also under the long-term category are what's called intangible assets: things like patents and brands, that are important, but hard to quantify. Accountants earn their stripes figuring out the real overall value of these assets.
Once you know your assets, it's time for liabilities. As with assets, liabilities are separated into short-term or current, and long-term. Current liabilities are what a company owes in that year: Things like payments to employees or accounts payable to suppliers. Long-term liabilities are debts paid over several years.
Shareholders' equity is determined by subtracting the liabilities from the assets. That number represents the value of the company after all its bills are paid.
Obviously, investors should pay close attention to balance sheets. Spikes in the amount of debt carried, or a reduction in shareholders' equity, are usually red flags.
Home / Personal Finance / Financial Planning / College & Education
Tuesday, September 06, 2005
The College-Savings Superpage, Part 2
Smart Money
The tax breaks for college are better than ever -- if you know the ins and outs. Here's part 2 of our guide.
College-Education
Deduction
Maximum Deduction Amount
For 2004 and 2005, a $4,000 "above the
line" deduction for college expenses paid for you, your spouse or anyone claimed as a dependent on your return. No deduction
is allowed for expenses of any person who can be claimed as a dependent on someone else's return. So your dependent college-age
child can't claim the deduction when your own AGI is too high to qualify. The $4,000 annual limit applies no matter how many
students are in your family.
Good For
College tuition and fees.
AGI
Limits
$65,000 (single); $130,000 (married filing jointly); For singles with 2004 or 2005 AGI between
$65,001 and $80,000 a reduced deduction of up to $2,000 is allowed; For married couples filing jointly with 2004 or 2005 AGI
between $130,001 and $160,000 a reduced deduction of up to $2,000 is allowed; not available for those who are married but
file separately.
Other Restrictions
No deduction can be claimed for expenses paid with
tax-free withdrawals of earnings from a 529 Qualified Tuition Plan (QTP)or Coverdell Education Savings Account (CESA). No
deduction is allowed for years when the Hope Scholarship or Lifetime Learning Credit is claimed for the student in question.
Hope Scholarship Credit
Max. Credit Amount
$1,500: 100% of
the first $1,000 of a college student's tuition and fees plus 50% of the next $1,000. Credit is taken per student, not per
return.
Good For
Expenses relating to the first or second year of college only. Expenses
include tuition and fees, such as course-related books, supplies and equipment. Cannot be used for room and board costs.
AGI Limits
For 2005, credit is phased out for singles with AGIs between $43,000 to $53,000;
married filing jointly, $87,000 to $107,000. Credit is not available for those who are married but file separately.
Other
Restrictions
Can only be claimed for two years per student. Student must be enrolled at least half the
time time for at least one academic period during the year. Cannot be used during same year you claim Lifetime Learning Credit
for a particular student.
Lifetime Learning Credit
Max. Credit Amount
Twenty percent of qualifying tuition and fees up to $10,000 for a maximum credit of $2,000 annually. Only one credit is
allowed per return, even if your family has several students.
Good For
Twenty percent
of qualifying tuition and fees, such as course-related books, supplies and equipment. Expenses for graduate work are allowed.
Cannot be used for room and board costs.
AGI Limits
For 2005, credit is phased out
for singles with AGIs between $43,000 to $53,000; married filing jointly, $87,000 to $107,000. Credit is not available for
those who are married but file separately.
Other Restrictions
Cannot be used during
same year you claim Hope Scholarship credit for a particular student. Unlike the Hope Scholarship Credit, there are no degree
or workload requirements for eligibility.
Student-Loan Interest Deduction
Max. Deduction Amount
$2,500
Good For
Qualified education loans for you, your spouse or anyone you claim
as a dependent. Loans can include those that have been refinanced and consolidated.
AGI Limits
For 2005, deduction is phased out for singles with AGIs of $50,000 to $65,000; married couples filing jointly, $105,000
to $135,000. Deduction is not available for those who are married but file separately.
Other Restrictions
No deduction is allowed if you are claimed as a dependent on someone else's taxes. Loans cannot include educational
expenses covered by a Coverdell ESA or an employer educational assistance program.
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