Category Archives: Education Deductions

Back-to-School Tax Credits

Seal of US Treasury IRSTake Advantage of Credits and Deductions 

Are you, your spouse or a dependent off to college? If so, here’s a quick tip from the IRS: some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:

  • American Opportunity Tax Credit.  The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
  • Lifetime Learning Credit.  With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
  • One credit per student.  You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student.  For example, you can claim the AOTC for one student and claim the LLC for the other student.
  • Qualified expenses.  You may include qualified expenses to figure your credit.  This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to for more about the additional rules that apply to each credit.
  • Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T.  In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.
  • Nonresident alien.  If you are in the U.S. on an F-1 student visa, you usually file your federal tax return as a nonresident alien. You can’t claim an education credit if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. To learn more about these rules see Publication 519, U.S. Tax Guide for Aliens.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

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IRS Red Flag Scenarios


A taxpayer was unable to prove his business deduction as a legitimate expense.  In 2006-2007 the taxpayer claimed his trips abroad were to take photographs for a book on world travel.  He deducted $20,000 for costs associated with his travels to Africa, Australia, Asia and South America.  He claimed he was a writer, but in 2011 he still had failed to publish anything – and the book was still in rough form.  It was decided that even though he had a business plan, and a profit motive, he failed to produce evidence that he was in a trade or business of being an author.  (¹Oros v. Comm. (December 31, 2013) US Court of Appeals for the Ninth District, Case No. 12-71071)


Husband and wife were denied a major deduction of $17,138 for the husband’s MBA tuition expenses.  Why?  Because they could not provide evidence that the schooling was required for his employment.  Education expenses may be deducted if the education:

  1. Maintains or improves skills required by the individual’s employment; or
  2. It meets the requirements of the individual’s employer or the law, as a condition of employment.


Source of content : Spidell’s Elder Client Care Planner , March 2014



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Family member in College? Need Tax Breaks?

There are three different tax breaks that might help you.

  • Tuition and Fees.  Required document is 1098-T.  In addition to the tuition and fees, I will need the name, address and Tax ID number of the school.  Unfortunately, the student is the one who gets the 1098-T – not the parent!  If they lost it – they will need to go to
  • Other expenses.  If your student doesn’t already have a degree you can deduct books, supplies, special software, maybe even their computer.  Be sure to get all related costs from your student. 
  • College Saving Plans.  Did you use a Section 529 Plan or a “Coverdell Savings Accounts” to help pay for the costs?  If so, you will be receiving IRS Form 1099-Q.  Your money grew – tax free.  We will need to show that the funds were used for “qualified expenses” otherwise you will be taxed now.  You also might subject to a penalty – so your tax preparer will need records of any and all costs.
  • Youngster’s Tax Returns.  If the student is your child, I can run what is called a “Kiddie Tax”.  Make sure your child does not file their own return until we’ve gone over the rules. 


Source: Tax News & Tips, Year End 2013