IRS Form 8863 (2014): American Education Credits  

What IRS Form 8863 (2014) Is For

IRS Form 8863 (2014) is used to claim education tax credits that help reduce the cost of higher education on your federal income tax return. The form calculates either the American Opportunity Tax Credit or the Lifetime Learning Credit based on your qualified education expenses. It applies to students attending an eligible educational institution. It allows taxpayers to claim an education benefit that reduces the tax owed or increases the tax refund for the 2014 tax year.

When You’d Use IRS Form 8863 (2014)

You use this form when your higher education expenses qualify for one of the two education tax credits available for the 2014 tax year.

1. Filing an original return: You attach IRS Form 8863 (2014) to your federal income tax return when you pay qualified education expenses for an eligible student in an academic period within the tax year.
   
   
2. Filing an amended return: You submit Form 1040X if you need to claim the credit after missing it on your original filing for the same tax year.
   
   
3. Correcting Eligibility Information: You must file again if earlier details about the student or educational institution affect your eligibility to claim an education credit.
   
   
4. Adjusting for refunded expenses: You update your filing when tuition refunds or financial aid adjustments reduce the related costs paid that originally qualified for the credit.
   
   
5. Reporting Student Identification: You file or amend the form when a taxpayer identification number or adoption taxpayer identification number needs to be corrected for tax purposes.

Key Rules or Details for Tax Year 2014

Several essential eligibility requirements apply when completing IRS Form 8863 (2014).

1. Income limits: You must meet the modified adjusted gross income thresholds to qualify for either the American Opportunity Credit or the Lifetime Learning Credit.
   
   
2. Filing status restrictions: You cannot claim an education credit if your filing status is married filing separately for the tax year.
   
   
3. Student eligibility rules: The student must pursue a recognized education credential or other recognized education credential at an eligible educational institution.
   
   
4. AOTC restrictions: The American Opportunity Credit applies only to undergraduate students in their first four academic periods, as long as they attend at least half-time.
   
   
5. LLC flexibility: The Lifetime Learning Credit allows part-time enrollment or courses taken to acquire or improve job skills during the academic period.
   
   
6. Qualified expense rules: You must use qualified tuition and related expenses that you paid for the academic period beginning in the 2014 tax year.
   
   
7. Drug conviction rule: A felony drug conviction by the end of the tax year disqualifies a student from receiving the American Opportunity Credit.
   
   
8. Duplicate-use restriction: You cannot claim both education credits for the same student in the same year because only one credit is permitted per student.

Step-by-Step (High Level)

These steps outline the general process for completing IRS Form 8863 (2014) for your education credits.

1. Gather documentation: Collect Form 1098, tuition statements, receipts for qualified education expenses, and records for books, supplies, and equipment related to the academic period.
   
   
2. Enter student and school details: You provide the eligible educational institution information and the student's details in Part III of IRS Form 8863 (2014).
   
   
3. Calculate adjusted expenses: You subtract tax-free educational assistance, such as scholarships or grants, from the qualified expenses you paid for higher education.
   
   
4. Determine AOTC eligibility: Assess whether the student meets the American Opportunity Tax Credit (AOTC) rules, including enrollment status and recognized education credential requirements.
   
   
5. Compute LLC amounts: You calculate the Lifetime Learning Credit by applying 20 percent to the qualified tuition and related expenses that remain after adjustments.
   
   
6. Apply phaseouts: You reduce the credit amount when your modified adjusted gross income falls within the applicable threshold ranges for the tax year.
   
   
7. Transfer totals: You transfer the final credit amount to your federal income tax return, allowing it to reduce the tax you owe or increase your tax refund.

Common Mistakes and How to Avoid Them

Several common errors can affect whether your education credit is allowed by the Internal Revenue Service.

1. Using 1098 numbers only: You avoid errors by using the actual qualified expenses you paid rather than relying only on the Form 1098 amounts reported by the educational institution.
   
   
2. Claiming more than four AOTC years: You verify that the same student has not already received four years of the American Opportunity Credit before you claim the credit again.
   
   
3. Ignoring scholarship rules: You subtract tax-free educational assistance from qualified expenses unless the scholarship terms allow allocation to living expenses instead.
   
   
4. Incorrect dependency claims: You confirm who claims the credit when the student appears on someone else’s tax return to avoid duplicate claims and eligibility conflicts.
   
   
5. Mixing credits incorrectly: You avoid using the same qualified expenses for both education credits and other education tax credits during the same academic period.
   
   
6. Wrong student identification: You ensure the student’s taxpayer identification number or adoption taxpayer identification number is accurate to prevent delays or a fraud penalty.

What Happens After You File

After you submit IRS Form 8863 (2014) with your federal income tax return, the Internal Revenue Service reviews your education credit claim and processes your credit amount. If the credit reduces your tax owed or creates a tax refund, the adjustment appears in your tax account once the return is accepted. The IRS may request documentation to verify qualified educational expenses or academic period eligibility, and you must respond promptly to avoid delays or denials of your education credit.

FAQs

Who can claim the American Opportunity Tax Credit for a student?

The credit can be claimed by the taxpayer who claims the student as a dependent and pays qualified educational expenses for the academic period. The same student cannot use the credit on someone else’s tax return for the same tax year.

Can prepaid tuition for an academic period beginning in 2015 count toward the 2014 credit?

Yes, prepaid qualified tuition and related expenses paid in 2014 can count if the academic period begins within the first three months of 2015. These amounts qualify for IRS Form 8863 (2014) even if classes start the following year.

Can one student qualify for both education credits in the same tax year?

No, the student cannot receive both the American Opportunity Tax Credit and the Lifetime Learning Credit for the same tax year. The Internal Revenue Service allows only one credit per student per year.

Do course materials qualify as qualified educational expenses for the AOTC?

Yes, books, supplies, and equipment required for enrollment count as qualified education expenses for the American Opportunity Credit. These items qualify even when purchased outside the eligible educational institution.

When does the Lifetime Learning Credit apply to job skills improvement courses?

The Lifetime Learning Credit applies when the student takes courses at an eligible educational institution to acquire or improve job skills. The credit does not require enrollment in a program leading to a degree or other recognized educational credential.