Education Credits

[Sharon]

<< Disclaimer I have a CPA prepare my taxes but want to understand the process better >>

The last couple of years she has taken classes at the high school where she could earn college credit. We paid one local CC $30.00 for each class and another CC $25.00 for each class.

Last year the total was $175.00 which was entered on line 34 of the 1040 along with a schedule 8917. Next year she will enter college full time along with the associated costs.

I have heard various different stories about how this will affect taxes next year. It is my understanding that if I pay $4,000 OOP on related education expenses that you will be able to take a $2500 tax credit. Am I anywhere close on my understanding of how this works?

A man at work (and I question what he really knows) claims that you can deduct the expenses and claim the deductions. That doesn't sound right.

I am mostly just trying to understand what I may be encountering next year.

Thank you

[mwcpa]

sharon.... the man at work is wrong....

try looking at this for a better understanding of the various (and yes somewhat confusing) college related credits and deduction

www.irs.gov/newsroom/article/0,,id=226993,00.html
www.irs.gov/publications/p970/index.html

(The links are to the IRS)

[tt00]

I have done this many of times.. You can only claim Hope credit for the 1st two years of school. After that it is lifetime learning credit deduction. And you can only claim this if your child is a dependent on your taxes if not your child can claim it on their taxes.. Also Books fees are deductible also. It will affect your taxes if they are reimbursed any of these fees through scholarships/ grants. You will then owe that money back. If none of that applies to your child student then no worries.

[commentator]

Apr 17, 2011 11:26:18 GMT -5 @tt00 said:

I have done this many of times.. You can only claim Hope credit for the 1st two years of school. After that it is lifetime learning credit deduction. And you can only claim this if your child is a dependent on your taxes if not your child can claim it on their taxes.. Also Books fees are deductible also. It will affect your taxes if they are reimbursed any of these fees through scholarships/ grants. You will then owe that money back. If none of that applies to your child student then no worries.

There is, temporarily, a new education credit called the American Opportunity Credit. It is also referred to as the Hope Credit - Extended because the rules are similar except the AOC is available for the first four years of college.

What specific expenditures qualify for a particular exclusion, credit or deduction depends upon the particular exclusion, credit or deduction you're talking about. That is the main reason education tax benefits are so needlessly complicated. Text book costs, for example, do not generate a deduction or credit but those costs do allow some cash receipts to be excluded from taxation.

As mwcpa noted, the details are available in IRS Publication 970, Tax Benefits of Education at www.irs.gov/publications/p970/index.html
or www.irs.gov/pub/irs-pdf/p970.pdf

[Sharon]

It sounds like I need to keep close track of what is spent and how it was paid for and then let the CPA sort everything out. I've already started a spread sheet on expenses so I will just a few more columns and see what happens.

Thank you everyone for your responses.

[cpadvisor]

With the cost of most colleges you usually only need the 1098-T. But listen to your CPA... he/she will ask you for the appropriate information...