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An Incorrect 1098-T Can Sink Your Tax Return

Oct 28, 2012

And if this form is wrong, your tax return may be wrong. And you may be entitled to a refund.

The American Opportunity Education Credit is one of the favored ways to get some tax relief for many parents. It's based on the amounts you paid for college tuition and related fees. However, one of the forms used in the preparation of your college tuition deduction or credit, the 1098-T, which is provided by the college, may not show the correct figures. If it is not correct, you may want to file an amended return and lower your tax liability.

Here’s Why

1098-T, Box 1, ‘Payments Received for Qualified Tuition and Related Expenses.’Included in this box is suppose to be ‘total payments’ from any source. This means not only from the student, and/or parent, but also student loans, which went directly to the college from the lender. This figure is not supposed to include insurances or student health fees.

1098-T, Box 2, ‘Amounts Billed for Qualified Tuition and Related Expenses.’ For 99.99 percent of us, this box is totally useless because we are ‘cash basis’ taxpayers, and record expenses when they are paid, not when we receive a bill. Included in this box is usually the amounts the college billed you in December for the spring semester — January, February, and March. You don’t care when or how much is billed. You only care about what you paid. Ignore this box.

1098-T, Box 4, ‘Adjustments Made for a Prior Year.’ If there is a figure in this box, you may have to file an amended return to report that you overstated the tuition and fees deduction of a prior year. If it reduces your education credit claimed in the prior year, no amended return is required. The difference is added to the current year’s tax liability. If there is an adjustment, it is incumbent upon you to pay back the excess. You don’t want to add to the national deficit, do you?

1098-T, Box 5, ‘Scholarships or Grants.’ The institution records these benefits you received in this box. These generally reduce your payments to the college. Again review the tuition statement carefully. It is your money.

1098-T, Box 6, ‘Adjustments to Scholarships or Grants for a Prior Year.’ This may also require you to file an amended return for a prior year.
What To Do?

For now, examine your statements, and make sure that the total you paid by cash, check, and student loans agree to Box 1. If not, and if you used the amount in box 1, consider filing an amended tax return.

When your 1099's come next year be sure to compare your records to the amounts on the statement
Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.comWant to be heard? Leave a reader comment below.

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