Tax Slayer entry:
Federal Section > Deductions > Adjustments > Tuition and Fees Deduction
Federal Section > Deductions > CreditsMenu > Education Credits
(both links go to the same TS worksheet)
- Actual qualified educational expenses must be determined and may not be any of the numbers on Form 1098-T.
- Entry of qualified expenses must be tried various way to determine the most advantageous method:
- As a business expense on Schedule C (reduces business income and self-employment taxes)
- As an unreimbursed employment expense on Schedule A.
- As an American Opportunity Credit using Form 8863 (results in a Refundable American Opportunity Credit on Page 2 of Form 1040 and possibly a Non-refundable Credit)
- As a Lifetime Learning Credit using Form 8863 (results in a Non-refundable Education Credit on Page 2 of Form 1040)
- As an adjustment to income on Page 1 of Form 1040)
Do a “what if” for the latter three options or use the Education Calculator to determine the best choice. It may be advantageous to consider some or all of the scholarship as taxable income to maximize other credits.
- The amount may include scholarship amounts
- If the scholarship was paid to the client, make sure all was used for qualified educational expenses.
- Excess amounts may be taxable. If so, enter the amount as Additional Earned Income using the Federal Section > Income > Other Income > Other Compensation > Scholarships and Grants TS page.
- Must be checked for American Opportunity Credit.
- Must usually not be checked for American Opportunity Credit unless that credit has not been used for 4 years.
See further discussion on the Education options resource page.