What should be kept for college expense tracking

Question

Parent of a Freshman - looking at AOTC for 2017 taxes and planning for 2018, haven't gotten good advice on how to prepare for this year's taxes, getting an extension, and looking for a list of things I need to get together to take to accountant.

Any clarifications or checklist would be great, it has been a confusing process to try to figure out. I get what are generally deductible expenses, and what are not, but I guess I'm looking for a comprehensive, specific list of things so I might consider something I would not have thought of myself.

Answer 1

The American Opportunities Tax Credit (AOTC) is based on the amount spent on qualified education expenses. This includes the amount spent on tuition and, unique to the AOTC, also includes the amount you spent on required textbooks and supplies.

The tuition portion should be spelled out on a 1098-T form that you should have received from the college. In general, you need this form and should try to get it if you haven’t received it. If you can’t, however, you’ll need some documentation that shows how much you paid and what the amount is for. Tuition is allowed, but room-and-board is not.

For the required textbooks and supplies portion, receipts from the bookstore should be sufficient if the book titles are shown so it is clear that the items are for required materials.

See the following for more information:

• American Opportunity Tax Credit
• Education Credits: Questions and Answers
• Qualified Education Expenses
• Publication 970, Tax Benefits for Education

Answer 2

See IRS Publication 970. On page 13, we have the section titled "What expenses qualify".

The school is obligated to send you the 1098-T to document you paid the tuition bill. The AOTC (American Opportunity Tax Credit) offers a $2500 credit (not a 'tax deduction', but a direct reduction of tax owed, a credit) for $4000 worth of higher education expenses. For most situations, $4000 for the first semester of school will be no issue, the billed tuition, likely covers this.

If not, "expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution."

The IRS pub offers an interesting anecdote

Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. William bought his books from a friend; Grace bought hers at College W's bookstore. Both are qualified education expenses for the American opportunity credit.

This leads me to advise that if you need to use these expenses, contemporaneous notes should suffice. For books or expenses purchased by check or credit card, keep those bills/receipts. For these cash purchases, the day, date, book title, class used for, and cost would impress any agent auditing you, should that occur.

Last - keep in mind, the tax code doesn't allow double dipping here. I am in the exact same timing as you, freshman student this year. When I went to pay her tuition, I was about to pay the bill via our 529 account, and after reading Pub 790, realized I'd lose the $2500 credit if I did that. To get the credit, I had to be sure to pay $4000 in cash. I realize that for 2017, the transactions are behind you, but for the member here reading this for schooling that just started, this may help avoid such a mistake.