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E File Your State Taxes For Free

E file your state taxes for free 6. E file your state taxes for free   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. E file your state taxes for free However, to determine these costs, you must value your inventory at the beginning and end of each tax year. E file your state taxes for free This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. E file your state taxes for free This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. E file your state taxes for free However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. E file your state taxes for free If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. E file your state taxes for free For more information, see chapter 2. E file your state taxes for free Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. E file your state taxes for free These lines are reproduced below and are explained in the discussion that follows. E file your state taxes for free 35 Inventory at beginning of year. E file your state taxes for free If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. E file your state taxes for free Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. E file your state taxes for free Subtract line 41 from line 40. E file your state taxes for free  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. E file your state taxes for free If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). E file your state taxes for free Opening inventory usually will be identical to the closing inventory of the year before. E file your state taxes for free You must explain any difference in a schedule attached to your return. E file your state taxes for free Donation of inventory. E file your state taxes for free   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. E file your state taxes for free The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. E file your state taxes for free You must remove the amount of your contribution deduction from your opening inventory. E file your state taxes for free It is not part of the cost of goods sold. E file your state taxes for free   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. E file your state taxes for free Treat the inventory's cost as you would ordinarily treat it under your method of accounting. E file your state taxes for free For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. E file your state taxes for free   A special rule may apply to certain donations of food inventory. E file your state taxes for free See Publication 526, Charitable Contributions. E file your state taxes for free Example 1. E file your state taxes for free You are a calendar year taxpayer who uses an accrual method of accounting. E file your state taxes for free In 2013, you contributed property from inventory to a church. E file your state taxes for free It had a fair market value of $600. E file your state taxes for free The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. E file your state taxes for free The charitable contribution allowed for 2013 is $400 ($600 − $200). E file your state taxes for free The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. E file your state taxes for free The cost of goods sold you use in determining gross income for 2013 must not include the $400. E file your state taxes for free You remove that amount from opening inventory for 2013. E file your state taxes for free Example 2. E file your state taxes for free If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. E file your state taxes for free You would not be allowed any charitable contribution deduction for the contributed property. E file your state taxes for free Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. E file your state taxes for free If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. E file your state taxes for free Trade discounts. E file your state taxes for free   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. E file your state taxes for free You must use the prices you pay (not the stated prices) in figuring your cost of purchases. E file your state taxes for free Do not show the discount amount separately as an item in gross income. E file your state taxes for free   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. E file your state taxes for free Cash discounts. E file your state taxes for free   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. E file your state taxes for free There are two methods of accounting for cash discounts. E file your state taxes for free You can either credit them to a separate discount account or deduct them from total purchases for the year. E file your state taxes for free Whichever method you use, you must be consistent. E file your state taxes for free If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. E file your state taxes for free For more information, see Change in Accounting Method in chapter 2. E file your state taxes for free   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. E file your state taxes for free If you use this method, do not reduce your cost of goods sold by the cash discounts. E file your state taxes for free Purchase returns and allowances. E file your state taxes for free   You must deduct all returns and allowances from your total purchases during the year. E file your state taxes for free Merchandise withdrawn from sale. E file your state taxes for free   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. E file your state taxes for free Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. E file your state taxes for free You must also charge the amount to your drawing account. E file your state taxes for free   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. E file your state taxes for free As stated above, you also use it to record withdrawals of merchandise for personal or family use. E file your state taxes for free This account is also known as a “withdrawals account” or “personal account. E file your state taxes for free ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. E file your state taxes for free Small merchandisers (wholesalers, retailers, etc. E file your state taxes for free ) usually do not have labor costs that can properly be charged to cost of goods sold. E file your state taxes for free In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. E file your state taxes for free Direct labor. E file your state taxes for free   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. E file your state taxes for free They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. E file your state taxes for free Indirect labor. E file your state taxes for free   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. E file your state taxes for free Other labor. E file your state taxes for free   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. E file your state taxes for free Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. E file your state taxes for free Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. E file your state taxes for free Those that are not used in the manufacturing process are treated as deferred charges. E file your state taxes for free You deduct them as a business expense when you use them. E file your state taxes for free Business expenses are discussed in chapter 8. E file your state taxes for free Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. E file your state taxes for free Containers. E file your state taxes for free   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. E file your state taxes for free If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. E file your state taxes for free Freight-in. E file your state taxes for free   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. E file your state taxes for free Overhead expenses. E file your state taxes for free   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. E file your state taxes for free The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. E file your state taxes for free Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. E file your state taxes for free Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. E file your state taxes for free Inventory at the end of the year is also known as closing or ending inventory. E file your state taxes for free Your ending inventory will usually become the beginning inventory of your next tax year. E file your state taxes for free Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. E file your state taxes for free Prev  Up  Next   Home   More Online Publications
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The Architect of the Capitol manages and maintains the U.S. Capitol, the Capitol Visitor Center, the Senate Office Buildings, the House Office Buildings, the Supreme Court Building, the Library of Congress, the U.S. Botanic Garden, and the Capitol Grounds

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The E File Your State Taxes For Free

E file your state taxes for free 6. E file your state taxes for free   Tuition and Fees Deduction Table of Contents IntroductionWhat is the tax benefit of the tuition and fees deduction. E file your state taxes for free Can You Claim the DeductionWho Can Claim the Deduction Who Cannot Claim the Deduction What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Claiming the Deduction Illustrated Example Introduction You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). E file your state taxes for free You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. E file your state taxes for free The qualified expenses must be for higher education, as explained later under Qualified Education Expenses . E file your state taxes for free What is the tax benefit of the tuition and fees deduction. E file your state taxes for free   The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. E file your state taxes for free   This deduction is taken as an adjustment to income. E file your state taxes for free This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). E file your state taxes for free This deduction may be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits. E file your state taxes for free You can choose the education benefit that will give you the lowest tax. E file your state taxes for free You may want to compare the tuition and fees deduction to the education credits. E file your state taxes for free See chapter 2, American Opportunity Credit and chapter 3, Lifetime Learning Credit for more information on the education credits. E file your state taxes for free Table 6-1. E file your state taxes for free Tuition and Fees Deduction at a Glance summarizes the features of the tuition and fees deduction. E file your state taxes for free Can You Claim the Deduction The following rules will help you determine if you can claim the tuition and fees deduction. E file your state taxes for free Who Can Claim the Deduction Generally, you can claim the tuition and fees deduction if all three of the following requirements are met. E file your state taxes for free You pay qualified education expenses of higher education. E file your state taxes for free You pay the education expenses for an eligible student. E file your state taxes for free The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return. E file your state taxes for free The term “qualified education expenses” is defined later under Qualified Education Expenses . E file your state taxes for free “Eligible student” is defined later under Who Is an Eligible Student . E file your state taxes for free For more information on claiming the deduction for a dependent, see Who Can Claim a Dependent's Expenses , later. E file your state taxes for free Table 6-1. E file your state taxes for free Tuition and Fees Deduction at a Glance Do not rely on this table alone. E file your state taxes for free Refer to the text for complete details. E file your state taxes for free Question Answer What is the maximum benefit? You can reduce your income subject to tax by up to $4,000. E file your state taxes for free What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er). E file your state taxes for free Where is the deduction taken? As an adjustment to income on  Form 1040 or Form 1040A. E file your state taxes for free For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either: •you,  •your spouse, or  •your dependent for whom you claim an exemption. E file your state taxes for free What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board. E file your state taxes for free Who Cannot Claim the Deduction You cannot claim the tuition and fees deduction if any of the following apply. E file your state taxes for free Your filing status is married filing separately. E file your state taxes for free Another person can claim an exemption for you as a dependent on his or her tax return. E file your state taxes for free You cannot take the deduction even if the other person does not actually claim that exemption. E file your state taxes for free Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). E file your state taxes for free 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. E file your state taxes for free More information on nonresident aliens can be found in Publication 519. E file your state taxes for free What Expenses Qualify The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. E file your state taxes for free Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014. E file your state taxes for free For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. E file your state taxes for free Academic period. E file your state taxes for free   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. E file your state taxes for free 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. E file your state taxes for free Paid with borrowed funds. E file your state taxes for free   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. E file your state taxes for free Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. E file your state taxes for free Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. E file your state taxes for free Student withdraws from class(es). E file your state taxes for free   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws. E file your state taxes for free Qualified Education Expenses For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. E file your state taxes for free Eligible educational institution. E file your state taxes for free   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. E file your state taxes for free S. E file your state taxes for free Department of Education. E file your state taxes for free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. E file your state taxes for free The educational institution should be able to tell you if it is an eligible educational institution. E file your state taxes for free   Certain educational institutions located outside the United States also participate in the U. E file your state taxes for free S. E file your state taxes for free Department of Education's Federal Student Aid (FSA) programs. E file your state taxes for free Related expenses. E file your state taxes for free   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. E file your state taxes for free Prepaid expenses. E file your state taxes for free   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. E file your state taxes for free See Academic period , earlier. E file your state taxes for free For example, 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). E file your state taxes for free 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). E file your state taxes for free In the following examples, assume that each student is an eligible student and each college or university an eligible educational institution. E file your state taxes for free Example 1. E file your state taxes for free Jackson is a sophomore in University V's degree program in dentistry. E file your state taxes for free 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. E file your state taxes for free Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified education expense. E file your state taxes for free Example 2. E file your state taxes for free Donna and Charles, 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. E file your state taxes for free 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. E file your state taxes for free Charles bought his books from a friend, so what he paid for them is not a qualified education expense. E file your state taxes for free Donna bought hers at College W's bookstore. E file your state taxes for free Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. E file your state taxes for free Example 3. E file your state taxes for free When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. E file your state taxes for free 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. E file your state taxes for free No portion of the fee covers personal expenses. E file your state taxes for free Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. E file your state taxes for free Therefore, it is a qualified expense. E file your state taxes for free No Double Benefit Allowed You cannot do any of the following. E file your state taxes for free Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense. E file your state taxes for free Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year. E file your state taxes for free Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). E file your state taxes for free For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. E file your state taxes for free See Coordination With Tuition and Fees Deduction in chapter 8, Qualified Tuition Program, later. E file your state taxes for free Deduct qualified education expenses that have been paid with tax-free interest on U. E file your state taxes for free S. E file your state taxes for free savings bonds (Form 8815). E file your state taxes for free See Figuring the Tax-Free Amount in chapter 10, Education Savings Bond Program, later. E file your state taxes for free Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. E file your state taxes for free See the following section on Adjustments to Qualified Education Expenses. E file your state taxes for free 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. E file your state taxes for free The result is the amount of adjusted qualified education expenses for each student. E file your state taxes for free You must also reduce qualified education expenses by the other amounts referred to in No Double Benefit Allowed , earlier. E file your state taxes for free Tax-free educational assistance. E file your state taxes for free   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. E file your state taxes for free See Academic period , earlier. E file your state taxes for free   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. E file your state taxes for free 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). E file your state taxes for free   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. E file your state taxes for free 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. E file your state taxes for free   This tax-free education assistance includes: The tax-free part 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), 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. E file your state taxes for free Generally, any scholarship or fellowship is treated as tax free. E file your state taxes for free 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. E file your state taxes for free 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. E file your state taxes for free 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. E file your state taxes for free 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. E file your state taxes for free For details, see Adjustments to Qualified Education Expenses in chapters 2 and 3. E file your state taxes for free Refunds. E file your state taxes for free   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. E file your state taxes for free Some tax-free educational assistance received after 2013 may be treated as a refund. E file your state taxes for free See Tax-free educational assistance , earlier. E file your state taxes for free Refunds received in 2013. E file your state taxes for free   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. E file your state taxes for free Refunds received after 2013 but before your income tax return is filed. E file your state taxes for free   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. E file your state taxes for free Refunds received after 2013 and after your income tax return is filed. E file your state taxes for free   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. E file your state taxes for free See Credit recapture , later. E file your state taxes for free Coordination with Coverdell education savings accounts and qualified tuition programs. E file your state taxes for free   Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). E file your state taxes for free For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. E file your state taxes for free Credit recapture. E file your state taxes for free    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. E file your state taxes for free You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing that amount by the amount of the refund or tax-free educational assistance. E file your state taxes for free You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). E file your state taxes for free Include that amount as an additional tax for the year the refund or tax-free assistance was received. E file your state taxes for free Example. E file your state taxes for free   You paid $3,500 of qualified education expenses in December 2013, and your child began college in January 2014. E file your state taxes for free You claimed $3,500 as the tuition and fees deduction on your 2013 income tax return. E file your state taxes for free The reduction reduced your taxable income by $3,500. E file your state taxes for free Also, you claimed no tax credits in 2013. E file your state taxes for free Your child withdrew from two classes and you received a refund of $2,000 in 2014 after you filed your 2013 tax return. E file your state taxes for free Refigure your 2013 tuition and fees deduction using $1,500 of qualified education expense instead of the $3,500. E file your state taxes for free The refigured tuition and fees deduction is $1,500. E file your state taxes for free Do not file an amended 2013 tax return to account for this adjustment. E file your state taxes for free Instead, include the difference of $2,000 (but only to the extent this difference would have increased your 2013 tax) on the “Other income” line of your 2014 Form 1040. E file your state taxes for free You cannot file Form 1040A for 2014. E file your state taxes for free Amounts that do not reduce qualified education expenses. E file your state taxes for free   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. E file your state taxes for free   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. E file your state taxes for free 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 Restrictions. E file your state taxes for free The use of the money is not restricted. E file your state taxes for free Example 1. E file your state taxes for free In 2013, Jackie paid $3,000 for tuition and $5,000 for room and board at University X. E file your state taxes for free The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. E file your state taxes for free To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. E file your state taxes for free The terms of the scholarship state that it can be used to pay any of Jackie's college expenses. E file your state taxes for free University X applies the $2,000 scholarship against Jackie's $8,000 total bill, and Jackie pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. E file your state taxes for free Jackie does not report any portion of the scholarship as income on her tax return. E file your state taxes for free In figuring the tuition and fees deduction, Jackie must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. E file your state taxes for free 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. E file your state taxes for free Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship) in 2013. E file your state taxes for free Example 2. E file your state taxes for free The facts are the same as in Example 1, except that Jackie reports her entire scholarship as income on her tax return. E file your state taxes for free Because Jackie reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. E file your state taxes for free Jackie is treated as having paid $3,000 in qualified education expenses. E file your state taxes for free 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. E file your state taxes for free This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. E file your state taxes for free Sports, games, hobbies, and noncredit courses. E file your state taxes for free   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. E file your state taxes for free However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. E file your state taxes for free Comprehensive or bundled fees. E file your state taxes for free   Some eligible educational institutions combine all of their fees for an academic period into one amount. E file your state taxes for free 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 above, contact the institution. E file your state taxes for free 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. E file your state taxes for free See Figuring the Deduction , later, for more information about Form 1098-T. E file your state taxes for free Who Is an Eligible Student For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). E file your state taxes for free Who Can Claim a Dependent's Expenses Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must: Have paid the expenses, and Claim an exemption for the student as a dependent. E file your state taxes for free For you to be able to deduct qualified education expenses for your dependent, you must claim an exemption for that individual. E file your state taxes for free You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. E file your state taxes for free IF your dependent is an eligible student and you. E file your state taxes for free . E file your state taxes for free . E file your state taxes for free AND. E file your state taxes for free . E file your state taxes for free . E file your state taxes for free THEN. E file your state taxes for free . E file your state taxes for free . E file your state taxes for free claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. E file your state taxes for free Your dependent cannot take a deduction. E file your state taxes for free claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. E file your state taxes for free do not claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction. E file your state taxes for free do not claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. E file your state taxes for free Expenses paid by dependent. E file your state taxes for free   If your dependent pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. E file your state taxes for free Neither you nor your dependent can deduct the expenses. E file your state taxes for free For purposes of the tuition and fees deduction, you are not treated as paying any expenses actually paid by a dependent for whom you or anyone other than the dependent can claim an exemption. E file your state taxes for free This rule applies even if you do not claim an exemption for your dependent on your tax return. E file your state taxes for free Expenses paid by you. E file your state taxes for free   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring your tuition and fees deduction. E file your state taxes for free Expenses paid under divorce decree. E file your state taxes for free   Qualified education expenses paid directly to an eligible educational institution for a student under a court-approved divorce decree are treated as paid by the student. E file your state taxes for free Only the student would be eligible to take a tuition and fees deduction for that payment, and then only if no one else could claim an exemption for the student. E file your state taxes for free Expenses paid by others. E file your state taxes for free   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. E file your state taxes for free In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. E file your state taxes for free If you claim, or can claim, an exemption on your tax return for the student, you are not considered to have paid the expenses and you cannot deduct them. E file your state taxes for free If the student is not a dependent, only the student can deduct payments made directly to the institution for his or her expenses. E file your state taxes for free If the student is your dependent, no one can deduct the payments. E file your state taxes for free Example. E file your state taxes for free In 2013, Ms. E file your state taxes for free Baker makes a payment directly to an eligible educational institution for her grandson Dan's qualified education expenses. E file your state taxes for free For purposes of deducting tuition and fees, Dan is treated as receiving the money from his grandmother and, in turn, paying his own qualified education expenses. E file your state taxes for free If an exemption cannot be claimed for Dan on anyone else's tax return, only Dan can claim a tuition and fees deduction for his grandmother's payment. E file your state taxes for free If someone else can claim an exemption for Dan, no one will be allowed a deduction for Ms. E file your state taxes for free Baker's payment. E file your state taxes for free Tuition reduction. E file your state taxes for free   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. E file your state taxes for free 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. E file your state taxes for free For more information on tuition reductions, see Qualified Tuition Reduction , in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file your state taxes for free Figuring the Deduction The maximum tuition and fees deduction in 2013 is $4,000, $2,000, or $0, depending on the amount of your MAGI. E file your state taxes for free See Effect of the Amount of Your Income on the Amount of Your Deduction , later. E file your state taxes for free Form 1098-T. E file your state taxes for free   To help you figure your tuition and fees deduction, the student should receive Form 1098-T (see Appendix A for a completed example of Form 1098-T). E file your state taxes for free 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. E file your state taxes for free An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. E file your state taxes for free However, the amount in boxes 1 and 2 of Form 1098-T might be different than what you paid. E file your state taxes for free When figuring the deduction, use only the amounts you paid in 2013 for qualified education expenses. E file your state taxes for free   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. E file your state taxes for free    The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number. E file your state taxes for free Effect of the Amount of Your Income on the Amount of Your Deduction If your MAGI is not more than $65,000 ($130,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. E file your state taxes for free If your MAGI is larger than $65,000 ($130,000 if you are married filing jointly), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. E file your state taxes for free No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000 if you are married filing jointly). E file your state taxes for free Modified adjusted gross income (MAGI). E file your state taxes for free   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for tuition and fees. E file your state taxes for free However, as discussed below, there may be other modifications. E file your state taxes for free MAGI when using Form 1040A. E file your state taxes for free   If you file Form 1040A, your MAGI is the AGI on line 22 of that form, figured without taking into account any amount on line 19 (tuition and fees deduction). E file your state taxes for free MAGI when using Form 1040. E file your state taxes for free   If you file Form 1040, your MAGI is the AGI on line 38 of that form, figured without taking into account any amount on line 34 (tuition and fees deduction) or line 35 (domestic production activities deduction), and 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. E file your state taxes for free   Table 6-2 shows how the amount of your MAGI can affect your tuition and fees deduction. E file your state taxes for free   You can use Worksheet 6-1. E file your state taxes for free MAGI for the Tuition and Fees Deduction , later, to figure your MAGI. E file your state taxes for free Table 6-2. E file your state taxes for free Effect of MAGI on Maximum Tuition and Fees Deduction IF your filing status is. E file your state taxes for free . E file your state taxes for free . E file your state taxes for free AND your MAGI is. E file your state taxes for free . E file your state taxes for free . E file your state taxes for free THEN your maximum tuition and fees deduction is. E file your state taxes for free . E file your state taxes for free . E file your state taxes for free single,  head of household, or qualifying widow(er) not more than $65,000 $4,000. E file your state taxes for free more than $65,000  but not more than $80,000 $2,000. E file your state taxes for free more than $80,000 $0. E file your state taxes for free married filing joint return not more than $130,000 $4,000. E file your state taxes for free more than $130,000 but not more than $160,000 $2,000. E file your state taxes for free more than $160,000 $0. E file your state taxes for free Claiming the Deduction You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. E file your state taxes for free Enter the deduction on Form 1040, line 34, or Form 1040A, line 19. E file your state taxes for free A filled-in Form 8917 is shown at the end of this chapter. E file your state taxes for free Illustrated Example Tim Pfister, a single taxpayer, enrolled full-time at a local college to earn a degree in engineering. E file your state taxes for free This is the first year of his postsecondary education. E file your state taxes for free During 2013, he paid $3,600 for his qualified 2013 tuition expense. E file your state taxes for free Both he and the college meet all of the requirements for the tuition and fees deduction. E file your state taxes for free Tim's total income (Form 1040, line 22) and MAGI are $26,000. E file your state taxes for free He figures his deduction of $3,600 as shown on Form 8917, later. E file your state taxes for free Worksheet 6-1. E file your state taxes for free MAGI for the Tuition and Fees Deduction Use this worksheet if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. E file your state taxes for free Before using this worksheet, you must complete Form 1040, lines 7 through 33, and figure any amount to be entered on the dotted line next to line 36. E file your state taxes for free 1. E file your state taxes for free Enter the amount from Form 1040, line 22   1. E file your state taxes for free         2. E file your state taxes for free Enter the total from Form 1040, lines 23 through 33   2. E file your state taxes for free               3. E file your state taxes for free Enter the total of any amounts entered on the dotted line next to Form 1040, line 36   3. E file your state taxes for free               4. E file your state taxes for free Add lines 2 and 3   4. E file your state taxes for free         5. E file your state taxes for free Subtract line 4 from line 1   5. E file your state taxes for free         6. E file your state taxes for free Enter your foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   6. E file your state taxes for free         7. E file your state taxes for free Enter your foreign housing deduction (Form 2555, line 50)   7. E file your state taxes for free         8. E file your state taxes for free Enter the amount of income from Puerto Rico you are excluding   8. E file your state taxes for free         9. E file your state taxes for free Enter the amount of income from American Samoa you are  excluding (Form 4563, line 15)   9. E file your state taxes for free         10. E file your state taxes for free Add lines 5 through 9. E file your state taxes for free This is your modified adjusted gross income   10. E file your state taxes for free     Note. E file your state taxes for free If the amount on line 10 is more than $80,000 ($160,000 if married filing jointly),  you cannot take the deduction for tuition and fees. E file your state taxes for free       This image is too large to be displayed in the current screen. E file your state taxes for free Please click the link to view the image. E file your state taxes for free Form 8917 for Tim Pfister Prev  Up  Next   Home   More Online Publications