Education Credits--please Help!

[Super Mom]

I always went by the 1098-T and subtracted the grants/scholarships box before. Per so much information on this board, I recommended them to get me the information from the college, so that I could see what was paid in the tax year. I'm just double checking again since my experience looking at college info is very limited. T/P went to a big block firm last year and they got a very small credit based on the 1098-T. However, the payment screen from the college was significantly higher than that credit. I'm doubting myself because the 1098-T was so off. I suggested that the taxpayer ammend and show the credit for what it should've been. Will be doing this in a few weeks, just want opinions from you all first on anything I should watch for. Thanks for all of your help!

[Burke]

As many of us can attest to, these 1098-T forms are pretty worthless. The transcript from the college should be an accurate reflection of what really happened. Or as accurate as you are likely to get. The ones I have seen are pretty detailed, showing the exact charges broken down by tuition, fees, athletic charges, room and board, etc, and whether the payments received were from scholarships, grants (even describing the type of grant, Pell, etc), loans, credit card, check, etc. I think you can trust that.

[Super Mom]

This is a simple "payment screen" from the college, I'm positive that no room and board were included.

[Koss]

Education Credit

You pretty much have to do the calculations manually.

Disregard the Form 1098-T. Start from square one.

The vast majority of scholarships and grants and paid to the institution and credited to the student's account, so they should show up as payments in the student account, or negative entries, with a descriptor that identifies the source of the grant or scholarship, such as "2009 Pell Grant" or "Pres Merit Awd," etc.

Loan disbursements should show up the same way.

But you should ask whether they student received any grants or scholarships that were not paid directly to the school.

You need to go through the charges in the student account with a fine-tooth comb, and weed out stuff that doesn't qualify, such as room and board, parking, student health insurance, etc.

You should ask about qualifying expenses that do not appear on the college statements, such as books and course materials, including, possibly, a laptop computer.

At the risk of stating the obvious, you gotta pay close attention to the dates on which the various charges were billed, and for which academic period. I assume that you fully understand the implications. But your client may not, and my experience has been that if you don't ask the right questions, you get an incomplete or inaccurate picture. Sometimes you have to ask the same question two or three different ways.

I'm not trying to insult anyone's intelligence, but I've worked with clients that have gotten seriously confused by the phrase "last year." It doesn't help that you are talking about amending what I assume is a 2009 return. Clients get mixed up very easily because most students start attending college in the fall, so the first year involves only one semester or one quarter. The 1098-T for 2009 may have failed to account for a tuition payment that was made in December 2009 for the first academic term in 2010. That payment should have been used to figure the education credit for 2009. But I'm not kidding when I say that your client may go deer-in-the-headlights if you try to explain this.

Just a couple weeks ago, a client e-mailed me a scanned image of his Form W-2. This client teaches K-12. Again, I'm not trying to insult anyone's intelligence. But my point is that this is an educated client. This is not someone who dropped out of high school.

The subject line of his e-mail was: 2011 W2 Form

It is certainly true that what he sent me was a Form W-2 that he received in 2011. But it simply illustrates how easily clients can get confused.

When you talk with your client about "last year's tax return," make sure they realize that you are talking about 2009.

This may not be a major issue for you with this particular client. But I have worked with uneducated clients that had real difficulty grasping this concept. They just couldn't get past the idea that the "last" time they filed a tax return was in February, 2010, and they received their "last" tax refund in March, 2010. For these clients, whatever they filed "last year," was their "2010 taxes," because 2010 was "last year." They had a really hard time understanding why I was talking about facts and events, like who was living in their household, during 2009.

Use a simple account spreadsheet in MS Excel, or something that behaves like a traditional checkbook register, where you can enter payments of qualifying educational expenses as positive numbers, and scholarships and grants as negative numbers. The first column, of course, should be the date of the transaction.

Make sure the client understands that anything that was "paid" with funds from student loan is considered paid by the parent or by the student. I've worked with clients that had great difficulty understanding that concept, also.

The amount of any student loan disbursement paid from a bank into the student account at the college is irrelevant in calculating the qualifying educational expenses. Equally irrelevant is the amount of any refund of a credit balance that may have existed in the student account at the college, i.e., a check issued by the college to the student, because the student loan disbursement exceeded the balance due on the account. This type of refund could be misinterpreted as a refund of tuition, which would obviously have an impact. A refund of tuition might actually happen, if, for example, the student dropped a course.

Fill in the account spreadsheet with the client at your desk, or fill it in by yourself. Either way, print it out, and review it line-by-line with your client, and make sure they fully understand it and agree with it. Of course, you also want to make sure that it is supported by the data provided by the college.

The sum at the bottom of the spreadsheet will give you your answer with respect to the education credits. The spreadsheet becomes the primary supporting document in the event of an audit. Of course, you would also need the account statements from the school and other stuff, like receipts for the books.

BMK

[Super Mom]

Thanks for the replies, I very much appreciate them, anyone else have opionions?

[Super Mom]

I'm thinking, the American Opportunity Credit is only good for 4,000 of expenses. The payment screen alone minus the grants is about 10,000 alone not counting books and any other expenses like a possible computer. So I'm thinking there's plenty of cushion there, I'm positive none of those amounts are room and board, so I don't need to worry about a detailed spreadsheet or getting out a fine toothed comb. Careless? Opinions?

[Burke]

I have done the same thing. When it's obvious that the allowable expenses are going to exceed the max, so no sense it having every detailed amt over and above that.

[Super Mom]

Thanks again!!!!