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Tax Question: Education Credits
Old 02-06-2009, 02:58 PM   #1
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Tax Question: Education Credits

This is DD's last year in college. The college billed the full tuition in 2008, but I made the final payment in 2009. Thus the 1098T tax document has the full amount for 2008.

Next year, I won't get a 1098T, but I would like to get the lifetime learning credit for the 2009 taxes.

Will that be possible?

Is there anything I should do now to make things simpler next year?

Thanks,

Al
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Old 02-06-2009, 05:55 PM   #2
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T-Al, this 86 page document should have the answer:

http://www.irs.gov/pub/irs-pdf/p970.pdf

Good luck.

As far as I can tell, if you pay in 2008 for a semester in early 2009, you can claim that on 2008 taxes. I didn't see anything that indicates you can go "backwards", and pay in 2009 for 2008 classes, and claim that on your 2009 taxes. It sounds like that is what you are trying to do, right?

I'm assuming you want to do that because your expenses max out in one year, and you can get a bigger total benefit by splitting that across two years?

The LLC maxes at $2,000 at 20% of expenses. So any expenses in one year > $10,000 get "wasted" as far a s a credit goes.

Two more views on this:

1) What? Are you out of your mind? You want to try to plan for 2009 taxes now, when Congress didn't even set the rules for 2008 until October of 2008? This is their game, not ours. Who the heck do you think you are?

2) Go for it. Do whatever it takes to lower your taxes. Timothy Geithner our new Secretary of the Treasury just claimed he "made an honest mistake" when he failed to pay US taxes on foreign income, after he signed documents that stated he *did* understand he had to pay US taxes on that income. From what I can see, knowing whether or not you are supposed to pay taxes on foreign income is a heck of a lot easier than going through some of these tax forms I'm dealing with. If you get caught, pay and say you're sorry. And hope the statute of limitations runs out so you can get away with it, like Timothy Geithner apparently hoped, since he didn't go back and correct his previous years after learning of his "honest mistake". So go for it.

And that was not a soap box comment - it was a money comment. I think having a tax cheat in that position is going to affect our money. I'm going to start a poll on that later.

Back to my 8615s. ARghhhh.

-ERD50
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Old 02-06-2009, 07:48 PM   #3
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Interview questions from Pub 4012 (Volunteer Resource Guide)
......translated into 2009 Tax Yr......

1) Did you pay qualified education expenses in 2009 for eligible student
to attend eligible education institution?
YES---go to step 2 NO...stop, cannot claim education credit

2) Did academic period for which you paid qualified educaion expenses begin
in 2009 or first 3 mos. of 2010?
YES....go to step 3 NO...stop, you cannot claim credit.


If you can answer YES to both questions (kind of sounds like you could), and assuming you meet all the other requirements , sounds to me like you would qualify for credit. The academic period they are talking about seems to be a quarter/semester.

The 1098T has 2 boxes that the school can fill in....amount billed or amount paid. Assuming that the amount billed is filled in, you should be able to claim expenses that you paid in the calendar year for 2008 and the expenses you paid in calendar year 2009 for the 2009 credit. If the 1098T does not reflect what you say (if the box amount paid is filled in), you should get the school to issue a revision if possible. A receipt showing you paid in 2009 for qualified expenses in 2009 seems like it should be good enough but it would be nice to have the 1098T reflect reality.
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Old 02-06-2009, 09:21 PM   #4
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Quote:
Originally Posted by TromboneAl View Post
This is DD's last year in college.
I may have been thrown off by "this" year.

What is this meaning of the word "this"?

Since I was deep in taxes, I read "this year" as "this tax year I am doing my taxes on, 2008". So I thought you meant DD was attending college in 2008, but not in 2009. But your payments extended into 2009 (payment plan?).

FWIW, the 1098-Ts that I have from two diff schools list amount billed (box 2), not amount paid (Box 1). Scholarship/grants in box 5.

It would be nice to split them to your advantage, but it would be nice to do that with capital gains/losses too. I don't know if it works that way. I wonder if the answer is in one of those 86 pages, or if this is another one of those things you need to ask for a ruling on.

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Old 02-07-2009, 10:12 AM   #5
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Thanks for the help. The IRS pub didn't cover this situation, although it should have.

Yes, she's attending through May 2009. So it was billed in 08, I paid in 09, and she's attending in '09. It's pretty clear cut, but the thing that bothers me is that the entire amount from the 1098T is going on this year's tax return. So how can I use it for next year's as well?

1098T.jpg

(Note the two typos on the 1098T "Check if you have change your reporting method..." and "check this box if the amount in box 1 or 2 include amounts...")
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Old 02-07-2009, 10:58 AM   #6
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Quote:
Originally Posted by TromboneAl View Post
Thanks for the help. The IRS pub didn't cover this situation, although it should have.

Yes, she's attending through May 2009. So it was billed in 08, I paid in 09, and she's attending in '09. It's pretty clear cut, but the thing that bothers me is that the entire amount from the 1098T is going on this year's tax return. So how can I use it for next year's as well?
OK, I've got you now. This is just amazing to me. Your situation may be somewhat uncommon, but it certainly is not unpredictable or out-of-this-world unusual. The instructions should cover this. The fact that in 86 pages, they can't cover a situation that one of our forum members found himself in, when he was in no way trying to go out of his way to complicate things, just trying to take a widely used and widely publicized tax credit, is just mind boggling. This should be routine and simple.

The fact that it is not says a lot about how bad our tax code is.

I don't know the answer, but it sure seems like you should be able to split the credit across two years, as she is attending school in each of those two years and your payments were made in each of the tax years.

On one hand, you should just do it. It seems right, it seems fair, it seems to match the *intention* of the rule (if I am decoding it right, I think I am).

OTOH, any mismatch in numbers tends to raise a flag - those are easily spotted by automated systems. And this is what you would have. I think it is likely to trigger an audit (which may be no more than a request for documentation, not a full blown line-by-line review of the whole 1040).

It's too bad that an honest taxpayer gets hit with that decision.

On the more constructive side of things: Can you get the school to re-issue the 1098-T with the "AMOUNT PAID" box filled in? There must be a reason they provide that box - maybe this is it? I think that would solve it, then your numbers would match, right? And you would request one for 2009, with just an amount paid I guess. I dunno. That might raise other flags....



Quote:
(Note the two typos on the 1098T "Check if you have change your reporting method..." and "check this box if the amount in box 1 or 2 include amounts...")
Geez, T-Al, with the thousands of forms they produce, you gotta expect a few typos, right? Hmmm, another sign of how bad this is - there *are* thousands of forms.

I had to dig through some forms in detail last night. In TAx ACt online, you go to a page with all the forms listed. I found myself scrolling through page after page of small font listings of forms to find the one I needed And you don't know if they called it "Schedule D worksheet", or "Capital Gains worksheet", or "Qualified Dividends and Capital Gains Worksheet", so that makes scanning for it tougher too.

I realized that the fact that I'm scanning through all these forms is a real sign of what a mess we have on our hands. It should not be like this.

Well, I should get back to my taxes. Later, I'm going to post another apparent "unintended consequence" of these stupid, inter-related counter productive rules. The short version is, a family with two kids one year apart in college can have a different tax bill from a family with kids two years apart in college, with all else equal. Now, why in the world would we want that to be the case? Makes no sense, does no good. Arghhhh.

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Old 02-07-2009, 11:32 AM   #7
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Originally Posted by TromboneAl View Post
, but the thing that bothers me is that the entire amount from the 1098T is going on this year's tax return. So how can I use it for next year's as well?
Not sure what you mean here......are you using tax software and replicating a form 1098T there and it is inputting the full amount billed into the calculation even tho you didn't pay that amount in 2008? or are you manually inputting the amount billed into a place where it is asking for the amount paid? I don't think either should happen. If it is and you also input the 2009 amount paid for 2009 taxes, that would be double-dipping as you suspect and not correct.
You might have to ask the software maker or people who use that software how to input the correct amount.

Also, if the scholarship shown is tax free, it might come into the calculation.
If, for example, they billed you $9K and you had a $1K scholarship, you would not have paid more than $8K and then you'd have to split that into 2008 vs 2009.
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Old 02-07-2009, 11:44 AM   #8
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I guess my alternatives are:

1. Put only half the amount of the 1098T in this year's taxes, and put the other half in next year.

2. Put it all in this year's, and forget about it for next year. Unless I do another big Roth conversion next year, it will only make a difference of a few hundred dollars.
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Old 02-07-2009, 11:52 AM   #9
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Here's something on another board:

Good point. Most taxpayers are on the "cash basis" of accounting. That means that you're taxed on income that you receive during the year, and deduct those allowable expenditures that you actually paid during the year. Items paid by credit card and student loan are deductible in the year that the transaction occurred.

For that reason, anyone in their last year of medical school should hold off paying their final semester's tuition and fees to January 1st of that year.

Expect to receive a form 1098-T from the college or university for every year that you are enrolled as a student. Usually, however, this form reflects the tuition that was billed during the year. Some schools are kind enough to print out additional info on the back of this form, including when payments were made by you during the year.

Since you only care about the tuition and fees PAID during the calendar year, it's a good idea to ask for a print-out of your activity from the school's Bursar's Office to be able to substantiate the tuition and fees paid during the year. Hopefully you'll find that your payments and loan disbursement reflect a January 2007 date.
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Old 02-11-2009, 03:57 PM   #10
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This just got more interesting. If I do our taxes based on paying all of the tuition in 2008, we pay $0 in tax (due to the lifetime learning credit).

However, if I base our taxes on only paying half of the tuition in 2008 (the true situation), we get a refund of $338. Why? Because in that case we pay tax on our pitiful jazz and knitting income, and therefore get a portion of the recovery rebate credit. Note that we would be receiving a credit even though we made no estimated or other tax payments.

So current plan: On this year's return I include a supporting statement that says:
Although the $X in qualified tuition charges were billed in August and December of 2008, I paid the December bill in January of 2009. Thus I am including half of the amount on my 2008 return, and will include the other half on my 2009 return.
Next year I will have a statement that says:
Our final tuition bill from Washington University in St. Louis was received in December, 2008, and we paid it in January of 2009. Thus we applied half of the tuition shown on last year's 1098T to our 2008 return and are now applying the other half to our 2009 return. This explains why we are claiming a tuition credit even though no 1098T form has been issued.

I'd rather lose $338 than have an audit. Do you think that those statements would keep the IRS happy?
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Old 02-11-2009, 05:11 PM   #11
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Quote:
Originally Posted by TromboneAl View Post
This just got more interesting. If I do our taxes based on paying all of the tuition in 2008, we pay $0 in tax (due to the lifetime learning credit).

However, if I base our taxes on only paying half of the tuition in 2008 (the true situation), we get a refund of $338. Why? Because in that case we pay tax on our pitiful jazz and knitting income, and therefore get a portion of the recovery rebate credit. Note that we would be receiving a credit even though we made no estimated or other tax payments.
This is what I also discovered, and posted in the thread:

A donut-hole in Tax Deductions/earnings?

Can't answer your question on documentation requirements, and whether it is even a correct way to do it (I suspect it is though), but I do know that if we had a 30% NST, and you went to the store to buy a $1 pack of gum, they would charge you $1.30 with tax. And that would be the end of the story. No documentation required from you, no question as to whether the drive there was for business purposes, and no question about what year you paid for it. You just pay it. period.

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Old 02-11-2009, 08:53 PM   #12
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Al, I have the same situation. The 1098-T shows 2 semesters that were BILLED in 2008, but I know that I PAID for the Spring 2009 semester in January, 2009. I deliberately paid it in 2009, for the LLC. I always pay the Spring payment after January 1st because a few years ago our student skipped a semester and the following year I would have had 3 tuition payments in one tax year and I would have gone over the limit. So I started paying for Spring in January.

You can use the tuition credit in the year that you paid it. Just document when you made the payment, how it was paid and the amount. Print a copy of the bursar statement showing when it was paid or a copy of your canceled check. Keep it with your tax return in case they ever come asking about it.

Came back to add this.

I looked in H&R Block's TAXCUT program and this is what it said in FAQ's about tuition for LLC -

What if my 2008 Form 1098-T doesn't show amounts paid in 2008 but billed in 2007?

You can enter amounts paid in 2008 even if they were billed (and reported to the IRS) in 2007. Many schools choose to report amounts billed rather than amounts paid.


The same will be true for amounts paid in 2009 even if they were billed (and reported to the IRS) in 2008.
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Old 02-12-2009, 09:01 AM   #13
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Perfect, thanks Sue.
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