Qualified Education Expenses

[tonia2021]

What are tax prepares requiring for documentation for the American Opportunity Credit as far as books and qualified expenses are concerned?

Are you requiring receipts for the books and supplies? Seems like a lot of the students pay for the books and the parents don't have the receipts.

Responses please.

[Koss]

Documentation

It is well established that we are not expected to audit the return before it is filed.

My official response is that no documentation is required to prepare the return. But I also don't want the client, or the college student, making numbers up out of thin air.

Reasonable estimates can be used.

Do you require actual receipts for someone claiming the expense of uniforms on Schedule A? I think this is very similar.

With that being said...

What if the return is audited, and the client doesn't have receipts for the books?

It seems to me that technically, the receipt alone may not be enough. To really hold up, you would need to establish not just that they spent money on books, but exactly which books, and then show that those books were required for courses that the student was taking.

So if an estimate is used, and then needs to be supported during an audit...

The taxpayer would need to produce:

(i) The student's course schedule, and
(ii) The syllabi of the courses, which would contain a list of the required textbooks

For purposes of estimating the cost of the books, in a manner that would probably hold up under the Cohan rule, you could simply price the books at Amazon.com or BarnesandNoble.com.

For a full-time undergraduate college student, books can easily run $500 to $1000 per academic year, or more.

BMK

[FEDUKE404]

About those books

Having "first hand" knowledge of college expenses (getting to anything resembling the truth with a Form 1098-T in hand is already tough enough!), how about:

Most college students will eventually turn in many of their textbooks for resale value, sometimes in a different calendar year. Example: Buy fall semester books in August and return same books for $$ in January of the next year.

How are we supposed to factor that goodie in??

FE

[RitaB]

Very good points

Having "first hand" knowledge of college expenses (getting to anything resembling the truth with a Form 1098-T in hand is already tough enough!), how about:

Most college students will eventually turn in many of their textbooks for resale value, sometimes in a different calendar year. Example: Buy fall semester books in August and return same books for $$ in January of the next year.

How are we supposed to factor that goodie in??

FE

I hadn't thought about the reselling of books, but that's what I did back in the day.

I HAVE thought about how horrible the 1098-T is. We need to ask the students if they received scholarships or grants. Had one last year who had $6500 on the 1098-T for expenses. The entire amount was paid by the G I Bill.

[Black Bart]

Hate to ask such a dumb question, but

what IS the American Opportunity Credit and for...what? Books? In addition to the tuition on 1098-T? Goes where? On 8863 along with Hope/Lifetime?

Guess I slept (or skipped) that part of the seminar.

[Lion]

The Old Hope

The new AOC is the new name for the old Hope Credit, but expanded to four years, a higher dollar amount, etc. The Hope is still around, but except for disaster areas that get to increase it, it's less beneficial than the new and improved Opportunity Credit. Don't you love it? Now, they're not just changing the tax laws every year, they're renaming them, too!

[BP.]

what IS the American Opportunity Credit and for...what? Books?

What Lion said, plus expanded expenses- "course materials" including books, supplies, equipment & no need to purchase at the school as condition of enrollment. Higher income limits to qualify & may be partly refundable. TTB 12-3. It's a goodie!

Oh, and higher income limits than the T&F deduction- which was my old potential fall-back if people couldn't qualify for the tuition credits 'cause of income.

[DixieEA]

books etc

For the lifetime credit the course-related books, supplies, and equipment would have to be
paid to the education institution. per 8863 instructions.

DixieEA

[1040notEZ]

Is a computer a AO credit qualified expense?

[BP.]

TTB 12-3. "If needed for enrollment or attendance."