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1040ez Tax Return

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1040ez Tax Return

1040ez tax return 2. 1040ez tax return   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. 1040ez tax return Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. 1040ez tax return They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). 1040ez tax return This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. 1040ez tax return What is the tax benefit of the American opportunity credit. 1040ez tax return   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. 1040ez tax return   A tax credit reduces the amount of income tax you may have to pay. 1040ez tax return Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. 1040ez tax return Forty percent of the American opportunity credit may be refundable. 1040ez tax return This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. 1040ez tax return   Your allowable American opportunity credit may be limited by the amount of your income. 1040ez tax return Also, the nonrefundable part of the credit may be limited by the amount of your tax. 1040ez tax return Overview of the American opportunity credit. 1040ez tax return   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. 1040ez tax return The details are discussed in this chapter. 1040ez tax return Can you claim more than one education credit this year. 1040ez tax return   For each student, you can elect for any year only one of the credits. 1040ez tax return For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. 1040ez tax return   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. 1040ez tax return If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. 1040ez tax return This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. 1040ez tax return Differences between the American opportunity and lifetime learning credits. 1040ez tax return   There are several differences between these two credits. 1040ez tax return For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. 1040ez tax return However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. 1040ez tax return The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. 1040ez tax return If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. 1040ez tax return If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. 1040ez tax return Table 2-1. 1040ez tax return Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. 1040ez tax return Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. 1040ez tax return You pay qualified education expenses of higher education. 1040ez tax return You pay the education expenses for an eligible student. 1040ez tax return The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. 1040ez tax return Student qualifications. 1040ez tax return   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. 1040ez tax return As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. 1040ez tax return For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. 1040ez tax return Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. 1040ez tax return If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. 1040ez tax return For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. 1040ez tax return The standard for what is half of the normal full-time work load is determined by each eligible educational institution. 1040ez tax return However, the standard may not be lower than any of those established by the U. 1040ez tax return S. 1040ez tax return Department of Education under the Higher Education Act of 1965. 1040ez tax return For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. 1040ez tax return See Prepaid expenses, later. 1040ez tax return As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. 1040ez tax return Example 1. 1040ez tax return Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. 1040ez tax return Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. 1040ez tax return Sharon claimed the American opportunity credit on her 2012 tax return. 1040ez tax return The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. 1040ez tax return Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. 1040ez tax return If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. 1040ez tax return Example 2. 1040ez tax return Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. 1040ez tax return His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. 1040ez tax return No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. 1040ez tax return The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. 1040ez tax return Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. 1040ez tax return If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. 1040ez tax return If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. 1040ez tax return Example 3. 1040ez tax return Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. 1040ez tax return Glenda pays her tuition for the 2014 Spring semester in December 2013. 1040ez tax return Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. 1040ez tax return If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. 1040ez tax return You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. 1040ez tax return Note. 1040ez tax return Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. 1040ez tax return “Qualified education expenses” are defined later under Qualified Education Expenses . 1040ez tax return “Eligible students” are defined later under Who Is an Eligible Student . 1040ez tax return A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . 1040ez tax return You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. 1040ez tax return This image is too large to be displayed in the current screen. 1040ez tax return Please click the link to view the image. 1040ez tax return Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. 1040ez tax return Your filing status is married filing separately. 1040ez tax return You are listed as a dependent on another person's tax return (such as your parents'). 1040ez tax return See Who Can Claim a Dependent's Expenses , later. 1040ez tax return Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). 1040ez tax return MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . 1040ez tax return You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. 1040ez tax return More information on nonresident aliens can be found in Publication 519, U. 1040ez tax return S. 1040ez tax return Tax Guide for Aliens. 1040ez tax return What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. 1040ez tax return Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. 1040ez tax return For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. 1040ez tax return Academic period. 1040ez tax return   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 1040ez tax return In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 1040ez tax return Paid with borrowed funds. 1040ez tax return   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. 1040ez tax return Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. 1040ez tax return Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. 1040ez tax return Student withdraws from class(es). 1040ez tax return   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. 1040ez tax return Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 1040ez tax return Eligible educational institution. 1040ez tax return   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 1040ez tax return S. 1040ez tax return Department of Education. 1040ez tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 1040ez tax return The educational institution should be able to tell you if it is an eligible educational institution. 1040ez tax return   Certain educational institutions located outside the United States also participate in the U. 1040ez tax return S. 1040ez tax return Department of Education's Federal Student Aid (FSA) programs. 1040ez tax return Related expenses. 1040ez tax return   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. 1040ez tax return   However, 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. 1040ez tax return Prepaid expenses. 1040ez tax return   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. 1040ez tax return See Academic period, earlier. 1040ez tax return For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). 1040ez tax return    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). 1040ez tax return   In the following examples, assume that each student is an eligible student at an eligible educational institution. 1040ez tax return Example 1. 1040ez tax return Jefferson is a sophomore in University V's degree program in dentistry. 1040ez tax return This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. 1040ez tax return Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. 1040ez tax return Example 2. 1040ez tax return 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. 1040ez tax return 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. 1040ez tax return William bought his books from a friend; Grace bought hers at College W's bookstore. 1040ez tax return Both are qualified education expenses for the American opportunity credit. 1040ez tax return Example 3. 1040ez tax return When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. 1040ez tax return This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. 1040ez tax return No portion of the fee covers personal expenses. 1040ez tax return Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. 1040ez tax return No Double Benefit Allowed You cannot do any of the following. 1040ez tax return Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. 1040ez tax return Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. 1040ez tax return Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. 1040ez tax return Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. 1040ez tax return See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. 1040ez tax return Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. 1040ez tax return See Adjustments to Qualified Education Expenses, next. 1040ez tax return Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. 1040ez tax return The result is the amount of adjusted qualified education expenses for each student. 1040ez tax return Tax-free educational assistance. 1040ez tax return   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. 1040ez tax return See Academic period, earlier. 1040ez tax return   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. 1040ez tax return This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). 1040ez tax return   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. 1040ez tax return If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. 1040ez tax return   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). 1040ez tax return Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 1040ez tax return Generally, any scholarship or fellowship is treated as tax free. 1040ez tax return However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. 1040ez tax return The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040ez tax return The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040ez tax return You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. 1040ez tax return For examples, see Coordination with Pell grants and other scholarships, later. 1040ez tax return Refunds. 1040ez tax return   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. 1040ez tax return Some tax-free educational assistance received after 2013 may be treated as a refund. 1040ez tax return See Tax-free educational assistance, earlier. 1040ez tax return Refunds received in 2013. 1040ez tax return   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. 1040ez tax return Refunds received after 2013 but before your income tax return is filed. 1040ez tax return   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. 1040ez tax return Refunds received after 2013 and after your income tax return is filed. 1040ez tax return   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. 1040ez tax return See Credit recapture, next. 1040ez tax return Credit recapture. 1040ez tax return    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. 1040ez tax return You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. 1040ez tax return You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). 1040ez tax return Include that amount as an additional tax for the year the refund or tax-free assistance was received. 1040ez tax return Example. 1040ez tax return   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. 1040ez tax return You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. 1040ez tax return After you filed your return, you received a refund of $4,000. 1040ez tax return You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. 1040ez tax return The refigured credit is $2,250. 1040ez tax return The increase to your tax liability is also $250. 1040ez tax return Include the difference of $250 as additional tax on your 2014 tax return. 1040ez tax return See the instructions for your 2014 income tax return to determine where to include this tax. 1040ez tax return If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. 1040ez tax return Amounts that do not reduce qualified education expenses. 1040ez tax return   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 1040ez tax return   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. 1040ez tax return The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040ez tax return The use of the money is not restricted. 1040ez tax return Example 1. 1040ez tax return Joan paid $3,000 for tuition and $5,000 for room and board at University X. 1040ez tax return The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. 1040ez tax return To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. 1040ez tax return The terms of the scholarship state that it can be used to pay any of Joan's college expenses. 1040ez tax return University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. 1040ez tax return Joan does not report any portion of the scholarship as income on her tax return. 1040ez tax return In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. 1040ez tax return The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. 1040ez tax return Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). 1040ez tax return Example 2. 1040ez tax return The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. 1040ez tax return Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. 1040ez tax return Joan is treated as having paid $3,000 in qualified education expenses. 1040ez tax return Coordination with Pell grants and other scholarships. 1040ez tax return   In some cases, you may be able to reduce your tax liability by including scholarships in income. 1040ez tax return If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. 1040ez tax return The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. 1040ez tax return Example 1—No scholarship. 1040ez tax return Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. 1040ez tax return This was his first year of postsecondary education. 1040ez tax return During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. 1040ez tax return He and the college meet all the requirements for the American opportunity credit. 1040ez tax return Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. 1040ez tax return Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. 1040ez tax return His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. 1040ez tax return He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. 1040ez tax return Example 2—Scholarship excluded from income. 1040ez tax return The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. 1040ez tax return Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. 1040ez tax return If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. 1040ez tax return His adjusted qualified education expenses will be zero and he will not have an education credit. 1040ez tax return Therefore, Bill's tax after credits would be $2,599. 1040ez tax return Example 3—Scholarship partially included in income. 1040ez tax return The facts are the same as in Example 2—Scholarship excluded from income. 1040ez tax return If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. 1040ez tax return The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. 1040ez tax return Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. 1040ez tax return Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. 1040ez tax return Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. 1040ez tax return This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. 1040ez tax return Sports, games, hobbies, and noncredit courses. 1040ez tax return   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. 1040ez tax return However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. 1040ez tax return Comprehensive or bundled fees. 1040ez tax return   Some eligible educational institutions combine all of their fees for an academic period into one amount. 1040ez tax return If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. 1040ez tax return The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. 1040ez tax return See Figuring the Credit , later, for more information about Form 1098-T. 1040ez tax return Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. 1040ez tax return This is a student who meets all of the following requirements. 1040ez tax return The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. 1040ez tax return This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. 1040ez tax return The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. 1040ez tax return For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. 1040ez tax return The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. 1040ez tax return These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. 1040ez tax return Completion of first 4 years. 1040ez tax return   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. 1040ez tax return This student generally would not be an eligible student for purposes of the American opportunity credit. 1040ez tax return Exception. 1040ez tax return   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. 1040ez tax return Enrolled at least half-time. 1040ez tax return   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. 1040ez tax return   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. 1040ez tax return However, the standard may not be lower than any of those established by the U. 1040ez tax return S. 1040ez tax return Department of Education under the Higher Education Act of 1965. 1040ez tax return Please click here for the text description of the image. 1040ez tax return Figure 2-2 Example 1. 1040ez tax return Mack graduated from high school in June 2012. 1040ez tax return In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. 1040ez tax return For the 2013 fall semester, Mack was enrolled less than half-time. 1040ez tax return Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). 1040ez tax return Example 2. 1040ez tax return After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. 1040ez tax return College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. 1040ez tax return Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. 1040ez tax return Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. 1040ez tax return Example 3. 1040ez tax return During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. 1040ez tax return Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. 1040ez tax return Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. 1040ez tax return Example 4. 1040ez tax return The facts are the same as in Example 3. 1040ez tax return During the 2013 spring semester, Larry again attended College X but not as part of a degree program. 1040ez tax return Larry graduated from high school in June 2013. 1040ez tax return For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. 1040ez tax return Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. 1040ez tax return Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. 1040ez tax return Example 5. 1040ez tax return Dee graduated from high school in June 2012. 1040ez tax return In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. 1040ez tax return Dee completed the program in December 2013, and was awarded a certificate. 1040ez tax return In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. 1040ez tax return Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. 1040ez tax return Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. 1040ez tax return For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. 1040ez tax return You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. 1040ez tax return IF you. 1040ez tax return . 1040ez tax return . 1040ez tax return THEN only. 1040ez tax return . 1040ez tax return . 1040ez tax return claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. 1040ez tax return The dependent cannot claim the credit. 1040ez tax return do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. 1040ez tax return You cannot claim the credit based on this dependent's expenses. 1040ez tax return Expenses paid by dependent. 1040ez tax return   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. 1040ez tax return Include these expenses when figuring the amount of your American opportunity credit. 1040ez tax return    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. 1040ez tax return Expenses paid by you. 1040ez tax return   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. 1040ez tax return If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. 1040ez tax return Expenses paid by others. 1040ez tax return   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. 1040ez tax return In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. 1040ez tax return If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. 1040ez tax return Example. 1040ez tax return In 2013, Ms. 1040ez tax return Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. 1040ez tax return For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. 1040ez tax return Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. 1040ez tax return If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. 1040ez tax return If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. 1040ez tax return Tuition reduction. 1040ez tax return    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. 1040ez tax return If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. 1040ez tax return For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040ez tax return Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. 1040ez tax return The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. 1040ez tax return You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. 1040ez tax return However, the credit may be reduced based on your MAGI. 1040ez tax return See Effect of the Amount of Your Income on the Amount of Your Credit , later. 1040ez tax return Example. 1040ez tax return Jack and Kay Ford are married and file a joint tax return. 1040ez tax return For 2013, they claim an exemption for their dependent daughter on their tax return. 1040ez tax return Their MAGI is $70,000. 1040ez tax return Their daughter is in her junior (third) year of studies at the local university. 1040ez tax return Jack and Kay paid qualified education expenses of $4,300 in 2013. 1040ez tax return Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. 1040ez tax return Jack and Kay can claim a $2,500 American opportunity credit in 2013. 1040ez tax return This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. 1040ez tax return Form 1098-T. 1040ez tax return   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. 1040ez tax return Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. 1040ez tax return An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. 1040ez tax return However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. 1040ez tax return When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. 1040ez tax return   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. 1040ez tax return    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. 1040ez tax return Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). 1040ez tax return You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). 1040ez tax return Modified adjusted gross income (MAGI). 1040ez tax return   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. 1040ez tax return MAGI when using Form 1040A. 1040ez tax return   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. 1040ez tax return MAGI when using Form 1040. 1040ez tax return   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 1040ez tax return You can use Worksheet 2-1, next, to figure your MAGI. 1040ez tax return    Worksheet 2-1. 1040ez tax return MAGI for the American Opportunity Credit 1. 1040ez tax return Enter your adjusted gross income  (Form 1040, line 38)   1. 1040ez tax return   2. 1040ez tax return Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. 1040ez tax return       3. 1040ez tax return Enter your foreign housing deduction (Form 2555, line 50)   3. 1040ez tax return       4. 1040ez tax return Enter the amount of income from Puerto Rico you are excluding   4. 1040ez tax return       5. 1040ez tax return Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. 1040ez tax return       6. 1040ez tax return Add the amounts on lines 2, 3, 4, and 5   6. 1040ez tax return   7. 1040ez tax return Add the amounts on lines 1 and 6. 1040ez tax return  This is your modified adjusted  gross income. 1040ez tax return Enter here and  on Form 8863, line 3   7. 1040ez tax return   Phaseout. 1040ez tax return   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. 1040ez tax return The same method is shown in the following example. 1040ez tax return Example. 1040ez tax return You are filing a joint return and your MAGI is $165,000. 1040ez tax return In 2013, you paid $5,000 of qualified education expenses. 1040ez tax return You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). 1040ez tax return Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. 1040ez tax return The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. 1040ez tax return The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). 1040ez tax return The result is the amount of your phased out (reduced) American opportunity credit ($1,875). 1040ez tax return      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. 1040ez tax return However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. 1040ez tax return Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. 1040ez tax return You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. 1040ez tax return You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). 1040ez tax return At least one of your parents was alive at the end of 2013. 1040ez tax return You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. 1040ez tax return Earned income. 1040ez tax return   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. 1040ez tax return Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. 1040ez tax return Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. 1040ez tax return   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). 1040ez tax return However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. 1040ez tax return Support. 1040ez tax return   Your support includes food, shelter, clothing, medical and dental care, education, and the like. 1040ez tax return Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. 1040ez tax return If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. 1040ez tax return However, a scholarship received by you is not considered support if you are a full-time student. 1040ez tax return See Publication 501 for details. 1040ez tax return Full-time student. 1040ez tax return   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. 1040ez tax return Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. 1040ez tax return Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. 1040ez tax return Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. 1040ez tax return A filled-in Form 8863 is shown at the end of this publication. 1040ez tax return Note. 1040ez tax return In Appendix A. 1040ez tax return at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. 1040ez tax return 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The 1040ez Tax Return

1040ez tax return 5. 1040ez tax return   Recordkeeping Table of Contents How To Prove ExpensesWhat Are Adequate Records? What If I Have Incomplete Records? Separating and Combining Expenses How Long To Keep Records and Receipts Examples of Records If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. 1040ez tax return This chapter discusses the records you need to keep to prove these expenses. 1040ez tax return If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. 1040ez tax return You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. 1040ez tax return These plans are discussed in chapter 6 under Reimbursements . 1040ez tax return How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. 1040ez tax return You must be able to prove the elements listed across the top portion of the chart. 1040ez tax return You prove them by having the information and receipts (where needed) for the expenses listed in the first column. 1040ez tax return You cannot deduct amounts that you approximate or estimate. 1040ez tax return You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. 1040ez tax return You must generally prepare a written record for it to be considered adequate. 1040ez tax return This is because written evidence is more reliable than oral evidence alone. 1040ez tax return However, if you prepare a record on a computer, it is considered an adequate record. 1040ez tax return What Are Adequate Records? You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. 1040ez tax return You should also keep documentary evidence that, together with your record, will support each element of an expense. 1040ez tax return Documentary evidence. 1040ez tax return   You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. 1040ez tax return Exception. 1040ez tax return   Documentary evidence is not needed if any of the following conditions apply. 1040ez tax return You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. 1040ez tax return ( Accountable plans and per diem allowances are discussed in chapter 6. 1040ez tax return ) Your expense, other than lodging, is less than $75. 1040ez tax return You have a transportation expense for which a receipt is not readily available. 1040ez tax return Adequate evidence. 1040ez tax return   Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. 1040ez tax return   For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. 1040ez tax return The name and location of the hotel. 1040ez tax return The dates you stayed there. 1040ez tax return Separate amounts for charges such as lodging, meals, and telephone calls. 1040ez tax return   A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. 1040ez tax return The name and location of the restaurant. 1040ez tax return The number of people served. 1040ez tax return The date and amount of the expense. 1040ez tax return If a charge is made for items other than food and beverages, the receipt must show that this is the case. 1040ez tax return Canceled check. 1040ez tax return   A canceled check, together with a bill from the payee, ordinarily establishes the cost. 1040ez tax return However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. 1040ez tax return Duplicate information. 1040ez tax return   You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. 1040ez tax return   You do not have to record amounts your employer pays directly for any ticket or other travel item. 1040ez tax return However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. 1040ez tax return Timely-kept records. 1040ez tax return   You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. 1040ez tax return A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. 1040ez tax return   You do not need to write down the elements of every expense on the day of the expense. 1040ez tax return If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. 1040ez tax return   If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. 1040ez tax return This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. 1040ez tax return Proving business purpose. 1040ez tax return   You must generally provide a written statement of the business purpose of an expense. 1040ez tax return However, the degree of proof varies according to the circumstances in each case. 1040ez tax return If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. 1040ez tax return Example. 1040ez tax return If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. 1040ez tax return You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. 1040ez tax return You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. 1040ez tax return Confidential information. 1040ez tax return   You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. 1040ez tax return However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. 1040ez tax return What If I Have Incomplete Records? If you do not have complete records to prove an element of an expense, then you must prove the element with: Your own written or oral statement containing specific information about the element, and Other supporting evidence that is sufficient to establish the element. 1040ez tax return If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. 1040ez tax return Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. 1040ez tax return Documentary evidence can be receipts, paid bills, or similar evidence. 1040ez tax return If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. 1040ez tax return For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. 1040ez tax return Invoices of deliveries establish when you used the car for business. 1040ez tax return Table 5-1. 1040ez tax return How To Prove Certain Business Expenses IF you have expenses for . 1040ez tax return . 1040ez tax return THEN you must keep records that show details of the following elements . 1040ez tax return . 1040ez tax return . 1040ez tax return   Amount Time Place or  Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. 1040ez tax return Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. 1040ez tax return Dates you left and returned for each trip and number of days spent on business. 1040ez tax return Destination or area of your travel (name of city, town, or other designation). 1040ez tax return Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. 1040ez tax return    Relationship: N/A Entertainment Cost of each separate expense. 1040ez tax return Incidental expenses such as taxis, telephones, etc. 1040ez tax return , may be totaled on a daily basis. 1040ez tax return Date of entertainment. 1040ez tax return (Also see Business Purpose. 1040ez tax return ) Name and address or location of place of entertainment. 1040ez tax return Type of entertainment if not otherwise apparent. 1040ez tax return (Also see Business Purpose. 1040ez tax return ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. 1040ez tax return  For entertainment, the nature of the business discussion or activity. 1040ez tax return If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. 1040ez tax return    Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. 1040ez tax return  For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. 1040ez tax return Gifts Cost of the gift. 1040ez tax return Date of the gift. 1040ez tax return Description of the gift. 1040ez tax return   Transportation Cost of each separate expense. 1040ez tax return For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. 1040ez tax return Date of the expense. 1040ez tax return For car expenses, the date of the use of the car. 1040ez tax return Your business destination. 1040ez tax return Purpose: Business purpose for the expense. 1040ez tax return    Relationship: N/A Sampling. 1040ez tax return   You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. 1040ez tax return You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. 1040ez tax return Example. 1040ez tax return You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. 1040ez tax return There is no other business use of the car, but you and your family use the car for personal purposes. 1040ez tax return You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. 1040ez tax return Invoices and bills show that your business use continues at the same rate during the later weeks of each month. 1040ez tax return Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year. 1040ez tax return Exceptional circumstances. 1040ez tax return   You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. 1040ez tax return This applies if all the following are true. 1040ez tax return You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records . 1040ez tax return You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . 1040ez tax return You have presented other evidence for the element that is the best proof possible under the circumstances. 1040ez tax return Destroyed records. 1040ez tax return   If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. 1040ez tax return Reasons beyond your control include fire, flood, and other casualties. 1040ez tax return    Table 5-2. 1040ez tax return Daily Business Mileage and Expense Log Name:       Odometer Readings Expenses Date Destination  (City, Town, or Area) Business Purpose Start Stop Miles  this trip Type  (Gas, oil, tolls, etc. 1040ez tax return ) Amount                                                                                                                   Weekly  Total             Total Year-to-Date             Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. 1040ez tax return Separating expenses. 1040ez tax return   Each separate payment is generally considered a separate expense. 1040ez tax return For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. 1040ez tax return You must record them separately in your records. 1040ez tax return Season or series tickets. 1040ez tax return   If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. 1040ez tax return To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. 1040ez tax return You must keep records to show whether you use each ticket as a gift or entertainment. 1040ez tax return Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. 1040ez tax return See Entertainment tickets in chapter 2. 1040ez tax return Combining items. 1040ez tax return   You can make one daily entry in your record for reasonable categories of expenses. 1040ez tax return Examples are taxi fares, telephone calls, or other incidental travel costs. 1040ez tax return Meals should be in a separate category. 1040ez tax return You can include tips for meal-related services with the costs of the meals. 1040ez tax return   Expenses of a similar nature occurring during the course of a single event are considered a single expense. 1040ez tax return For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. 1040ez tax return Car expenses. 1040ez tax return   You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. 1040ez tax return Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. 1040ez tax return Example. 1040ez tax return You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. 1040ez tax return You can account for these using a single record of miles driven. 1040ez tax return Gift expenses. 1040ez tax return   You do not always have to record the name of each recipient of a gift. 1040ez tax return A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. 1040ez tax return For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. 1040ez tax return Allocating total cost. 1040ez tax return   If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. 1040ez tax return To do so, you must establish the number of persons who participated in the event. 1040ez tax return   An allocation would be needed, for example, if you did not have a business relationship with all of your guests. 1040ez tax return See Allocating between business and nonbusiness in chapter 2. 1040ez tax return If your return is examined. 1040ez tax return    If your return is examined, you may have to provide additional information to the IRS. 1040ez tax return This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. 1040ez tax return    THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. 1040ez tax return Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. 1040ez tax return Travel Expenses: Airlines                                 Excess Baggage                                 Bus – Train                                 Cab and Limousine                                 Tips                                 Porter                                 2. 1040ez tax return Meals and Lodging:  Breakfast                                 Lunch                                 Dinner                                 Hotel and Motel  (Detail in Schedule B)                                 3. 1040ez tax return Entertainment  (Detail in Schedule C)                                 4. 1040ez tax return Other Expenses:  Postage                                 Telephone & Telegraph                                 Stationery & Printing                                 Stenographer                                 Sample Room                                 Advertising                                 Assistant(s)                                 Trade Shows                                 5. 1040ez tax return Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. 1040ez tax return ) (Detail mileage in Schedule A. 1040ez tax return ) Gas, oil, lube, wash                                 Repairs, parts                                 Tires, supplies                                 Parking fees, tolls                                 6. 1040ez tax return Other (Identify)                                 Total                                 Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. 1040ez tax return 00 or more. 1040ez tax return Schedule A – Car Mileage: End                 Start                 Total                 Business Mileage                 Schedule B – Lodging Hotel or Motel Name                 City                 Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship                                             WEEKLY REIMBURSEMENTS:     Travel and transportation expenses     Other reimbursements     TOTAL   How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. 1040ez tax return Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. 1040ez tax return A return filed early is considered filed on the due date. 1040ez tax return For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. 1040ez tax return You must keep records of the business use of your car for each year of the recovery period. 1040ez tax return See More-than-50%-use test in chapter 4 under Depreciation Deduction. 1040ez tax return Reimbursed for expenses. 1040ez tax return   Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. 1040ez tax return However, you may have to prove your expenses if any of the following conditions apply. 1040ez tax return You claim deductions for expenses that are more than reimbursements. 1040ez tax return Your expenses are reimbursed under a nonaccountable plan. 1040ez tax return Your employer does not use adequate accounting procedures to verify expense accounts. 1040ez tax return You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. 1040ez tax return Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. 1040ez tax return Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. 1040ez tax return Prev  Up  Next   Home   More Online Publications