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Video: Guide to IRS Form 1098-T Tuition Statement

Updated for Tax Year 2016


OVERVIEW

If you have education-related expenses, you may be eligible for an education credit or deduction. Watch this video to learn more about Form 1098-T and qualifying education expenses.


Did you or one of your dependents enroll in school during the tax year? If so, be on the lookout for a 1098-T form by January 31; it may end up saving you some money on your tax return this year.

Schools must send their students a 1098-T form to report the amount of qualified education expenses paid by the student during the year. This form is extremely important because the information it reports is vital to calculating many of the educational tax benefits the IRS offers, such as the American opportunity credit, the lifetime learning credit and the tuition and fees deduction.

You may think you can just calculate these tax benefits using the bills you receive from the school, but be careful before you do. This is because many of your school expenses aren't considered "qualified education expenses" and therefore can't be included when calculating your educational credit or deduction.

For example, the invoice you receive from your college may include charges for room and board, but these aren't considered qualified education expenses by the IRS.

Your 1098-T will include a number of boxes, but for purposes of calculating the amount of credit or deduction you are eligible to take on your tax return, boxes 1, 2, 5, and 7 are the most important.

Box 1 reports all payments the school receives from you to pay qualified education expenses. Box 2, on the other hand, reports the qualified education expenses the school bills you for, which may or may not be the same as the amount reported in box 1.

Other important information on the 1098-T includes the scholarships and grants that the school administers, which is reported in box 5. In most cases, your scholarships and grants are tax free if you use the funds for school expenses. As a result, the IRS requires that you reduce the qualified education expenses you include in your credit or deduction calculation for all payments you make with tax-free scholarships and grants.

One last tip you should be aware of. If you pay the school in advance for courses that begin in the first three months of the next tax year, you may be able to include those amounts in the credit or deduction you take in the current year. Box 1 includes these advance payments, so there aren't additional calculations to make, but box 7 will separately report them as well.

And remember, when you file with TurboTax, you don't need to know a thing about tax forms. We'll ask you simple questions about things like your education expenses to help you get your biggest tax refund.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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