Hey, college and grad school students! 1098-T Tax Tip!
Okay, kids. This one goes out to everyone who paid college tuition in the U.S. last year. When looking at a 1040, it appears that you can't deduct your tuition this year, but you can!
In case you don't know what I'm talking about: you can deduct up to $4,000 of the tuition you paid last year from your Gross Adjusted Income by using the Tuition and Fees Deduction. Basically, that means it gets deducted right off the top -- no wacky forms or line item deductions or any of that other crap. It just comes right off. This is not the Hope Credit or the Lifetime Learner credit. Those are less powerful and have all kinds of odd restrictions. This is a much more powerful and flexible credit.
The original Congressional bill that allowed you to take this credit expired after the 2005 tax year and was recently up for a vote to be extended. Congress re-approved it and so it continues for tax years 2006 and 2007. But the 1040 (the basic form for individual tax returns) that the IRS is publishing doesn't reflect this fact. So far as one can see by looking at the 1040, there is no way for you to take this credit.
In order to take it, you need to follow special directions on the IRS website. The directions are at:
http://www.irs.gov/formspubs/article/0,,id=109876,00.html#tuition_2006
Basically, you enter the credit on your return by putting the amount you're deducting on line 35 with a little "T" in front of it. I.e. if you get to deduct the full $4,000 you would put "T 4000" on Line 35. Line 35 currently says "Domestic production activities deduction. Attach Form 8903". You don't need to attach a form 8903 to take the Tuition and Fees Deduction. Don't be confused. This way of doing it is a hack the IRS put together to accomodate the last-minute change. Unfortunately, you would never know about it unless you dug around to find it.
If you are able to take this credit, your college/university should have sent you a Form 1098-T. It's kind of like a W-2 for this purpose. Your college will have also filed this with the IRS, so you don't need to attach it or anything. But if you haven't gotten one, you either need to pester your school or you just aren't eligible.
FYI, it looks like in order to take this credit you must file the big monster 1040. No 1040-EZ or 1040A for you. Don't be intimidated by all the lines that talk about cryptic things you don't understand. If you would normally use a 1040-EZ, then you will just end up leaving most of the lines blank.
If you were a full or part-time student last year and you worked, this credit can easily save you $1,000+ in taxes. So you really want to be able to take it.
PS: I am not an accountant. This is not offered as tax advice. This is my attempt to share my learning experience with others. Also, I can't provide support or anything like that. So don't ask, okay? Thanks. :)
In case you don't know what I'm talking about: you can deduct up to $4,000 of the tuition you paid last year from your Gross Adjusted Income by using the Tuition and Fees Deduction. Basically, that means it gets deducted right off the top -- no wacky forms or line item deductions or any of that other crap. It just comes right off. This is not the Hope Credit or the Lifetime Learner credit. Those are less powerful and have all kinds of odd restrictions. This is a much more powerful and flexible credit.
The original Congressional bill that allowed you to take this credit expired after the 2005 tax year and was recently up for a vote to be extended. Congress re-approved it and so it continues for tax years 2006 and 2007. But the 1040 (the basic form for individual tax returns) that the IRS is publishing doesn't reflect this fact. So far as one can see by looking at the 1040, there is no way for you to take this credit.
In order to take it, you need to follow special directions on the IRS website. The directions are at:
http://www.irs.gov/formspubs/article/0,,id=109876,00.html#tuition_2006
Basically, you enter the credit on your return by putting the amount you're deducting on line 35 with a little "T" in front of it. I.e. if you get to deduct the full $4,000 you would put "T 4000" on Line 35. Line 35 currently says "Domestic production activities deduction. Attach Form 8903". You don't need to attach a form 8903 to take the Tuition and Fees Deduction. Don't be confused. This way of doing it is a hack the IRS put together to accomodate the last-minute change. Unfortunately, you would never know about it unless you dug around to find it.
If you are able to take this credit, your college/university should have sent you a Form 1098-T. It's kind of like a W-2 for this purpose. Your college will have also filed this with the IRS, so you don't need to attach it or anything. But if you haven't gotten one, you either need to pester your school or you just aren't eligible.
FYI, it looks like in order to take this credit you must file the big monster 1040. No 1040-EZ or 1040A for you. Don't be intimidated by all the lines that talk about cryptic things you don't understand. If you would normally use a 1040-EZ, then you will just end up leaving most of the lines blank.
If you were a full or part-time student last year and you worked, this credit can easily save you $1,000+ in taxes. So you really want to be able to take it.
PS: I am not an accountant. This is not offered as tax advice. This is my attempt to share my learning experience with others. Also, I can't provide support or anything like that. So don't ask, okay? Thanks. :)