Accurate Advice Newsletter – September 2015

Back to School Tax Planning

September is back to school month for the majority of students, so it’s a great time to review tax planning strategies for those of you who are in college or have dependents that are in college.  

Grants and Scholarships

Grants and scholarships can be a huge financial boost to families and students struggling to afford tuition, fees and other education related expenses. Unfortunately, some scholarships and grants can become taxable income in certain situations.

The IRS says to avoid including grants and scholarships as taxable income a few conditions must be met:

  1. The student must be a degree candidate at an eligible educational institution.
  2. The scholarship or grant is used for qualified expenses. This includes tuition and fees, books and course related expenses like supplies. It does not include travel or room and board.
  3. The scholarship or grant must not represent wages received for teaching or other work.

Financial Aid

It may be a little late to qualify and receive federal aid for the fall semester at school but if you haven’t applied, it may be worth filling out an application at (note: It is free to fill out the Free Application for Federal Student Aid at, do not use and which try to charge for filling this application out) , even if you don’t plan on taking out student loans because it is possible to qualify for Federal need-based Pell Grants. These grants are subject to the above rules but do not have to be repaid. If you will be attending school next fall as well, you will want to apply next year as well after filing your 2015 tax return (it will be needed to fill out the application), since you will need to reapply for each school year you plan on attending.

Education Credits

Education credits directly reduce the amount of tax you owe and are partially refundable. There are currently 2 different education credits:

  1. American Opportunity Credit – This credit (expires 2017 as of this writing) allows for a maximum credit of $2,500 per student per year for 4 years of undergraduate education. To qualify for the full credit your modified adjusted gross income must not exceed $80,000 ($160,000 if married filing a joint return). Credit is limited or phased out completely if income exceeds these levels.
  2. Lifetime Learning Credit – This credit allows for a maximum credit of $2,000 per return (not per student), but it can apply to undergraduate, graduate or professional degree courses, with no limit on the number of years it can be taken. modified adjusted gross income must be $55,000 or less ($110,000 or less for married filing joint returns) and is phased out completely if income exceeds these levels.

If you qualify for both credits, you must choose one, you cannot claim both credits in the same tax year.


Deductions reduce your taxable income. There are 2 education deductions available.

  1. Tuition and fees deduction – This deduction allows for a maximum reduction in income of $4,000 per return. Modified adjusted gross income must be $80,000 or less ($160,000 if married filing a joint return) and is phased out completely above these income levels.
  2. Student Loan Interest Deduction – If you are currently paying interest on student loans, the interest paid may be able to reduce your taxable income by up to $2,500 per tax return. modified adjusted gross income must be $80,000 or less ($160,000 or less if married filing a joint tax return) and is phased out above these income levels.

The tuition and fees deduction cannot be taken in a year that you claim an education credit. The Student Loan Interest Deduction can be taken in the same year as any other education benefit.

Documents You Need

In order to claim an education credit or deduction it is important you save documentation of your expenses.

  • Form 1098-T – In January your education institution should mail you a statement of tuition paid called Form 1098-T. Not all institutions mail this document so if you have not received it in the mail by the beginning of February your institution may only make it available as a digital document that needs to be downloaded from the schools website. Contact your education institution for instructions on how to obtain this essential document from them.
  • Receipts for books and supplies –  The tuition and fees statement supplied by your school does not include these additional expenses which can be added to your total education expenses to increase applicable deductions and credits.
  • Form 1098-E – If you have been paying on student loans you should receive Form 1098-E (Student Loan Interest Statement) from your lender by the beginning of February. If you believe you paid student loan interest and did not receive a statement in the mail, contact your student loan lender to find out how to obtain this important document.


Tips for avoiding tax scams

According to the IRS, losses in excess of $20 Million have been reported by tax scam victims. Here are some things to know if you are targeted by scammers impersonating the IRS. The IRS will always contact you by mail first

      • If you are concerned about the legitimacy of a letter received from the IRS, you can go to the IRS Website ( and enter the letter or form number from your letter into the search box to check it is an official IRS form number. Scammers often modify real IRS forms, you can get more information on the Understanding your IRS Notice or Letter page. You can also verify the legitimacy of a letter or notice by calling the IRS at 1-800-829-1040

The IRS will not contact you by phone until contact has been initiated by form or letter first

      • If you receive a phone call from someone claiming to be from the IRS and you suspect they are not an IRS employee, ask for and record the employee’s name, badge number and call back number. If you have caller ID on your phone also write down the caller ID details. You can call the IRS at 1-800-366-4484 to verify they are really an employee and they have a legitimate reason to contact you.
      • The IRS will not call you about taxes owed without first mailing you a bill and they will never call you with threats demanding immediate payment over the phone. They will never threaten police or law enforcement action if you do not pay. The IRS always gives you the opportunity to question or appeal the amount they say you owe.

The IRS will not contact you about your tax account via email

      • If you receive an email that claims to be from the IRS requesting personal information do not reply, do not click any links, and do not download any attachments.
      • Scam emails should be forwarded to in their original form, then deleted.

More information on IRS scams and how to report scams

      • Scams can be reported to the IRS at their email
      • Scams can also be reported to the Treasury Inspector General for Tax Administration (TIGTA) via their website here or by calling them at 1-800-366-4484
      • For more information on IRS impersonation scams, how to report scams, and information on certain types of scams you can go to

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