In this article, we will discuss how college costs and financial aid affect tax returns. We will focus on accurately reporting expenses and aid so you can claim the appropriate tax credits. We will also provide some tips on filling out tax returns correctly and getting help if needed.
Reporting Financial Amounts Received
If a student receives a sum of money to pay college expenses, whether in the form of a scholarship, grant, or withdrawal from a 529 plan, you will need to report these amounts correctly on your federal income tax return. You will receive forms from the relevant parties to assist you with that.
Claiming the Appropriate Tax Credits
You may be able to claim tax credits such as the Lifetime Learning Credit or the American Opportunity Credit if you meet the required qualifications.
Supporting Documentation
The best way to stay in good standing in case of a tax audit is to provide documentation for everything. Receipts and other documents help you prove that the money was spent on qualified educational expenses.
Filling Out the Tax Return Carefully
Do not rush through the education sections of the tax return. Take your time and carefully transfer the numbers from Forms 1098 and 1099, and double-check your math. Tax preparation software can assist you with your calculations and may provide additional assurance for the math.
Getting Help If Necessary
Preparing taxes while studying or being a dependent student can be difficult. It might be best to work with a tax preparation professional. The amount you invest in ensuring your tax returns are filled out correctly may be worth it if you avoid the stress of a tax audit.
Frequently Asked Questions
Where do you enter financial aid on the tax form?
How does financial aid affect your tax refund?
Sources: IRS, H&R Block, Fidelity
Source: https://www.thebalancemoney.com/college-costs-and-financial-aid-on-tax-returns-4125501
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