Can I deduct educational expense that was/will be reimbursed?


K

koraky

In 2004, I paid $2000 in tuition for a Master's degree.
$1000 has been reimbursed so far through my company's
tuition reimbursement program. The other $1000 will be
reimbursed later this year when I receive my grades and they
are Bs or above.

Today I got a form 1098-T from the university for the $2000
I already paid in 2004. What can/should I do with this?

Thanks,
Korak
 
Ad

Advertisements

P

Phil Marti

In 2004, I paid $2000 in tuition for a Master's degree.
$1000 has been reimbursed so far through my company's
tuition reimbursement program. The other $1000 will be
reimbursed later this year when I receive my grades and they
are Bs or above.

Today I got a form 1098-T from the university for the $2000
I already paid in 2004. What can/should I do with this?
It depends on whether the tuition reibursement is taxable
income or not. If it is, you can use the $2,000 as the
basis for any of the education tax benefits described in
Publication 970. If the reimbursement is not taxable to
you, you can't use the expenses, and you can paper the
bathroom with the 1098-T.

Phil Marti
Clarksburg, MD
 
K

koraky

In 2004, I paid $2000 in tuition for a Master's degree.
$1000 has been reimbursed so far through my company's
tuition reimbursement program. The other $1000 will be
reimbursed later this year when I receive my grades and they
are Bs or above.

Today I got a form 1098-T from the university for the $2000
I already paid in 2004. What can/should I do with this?
I'd like to add that the first reimbursement was done just
the past month, Jan 05.

Thanks,
Korak
 
A

A.G. Kalman

It depends on whether the tuition reibursement is taxable
income or not. If it is, you can use the $2,000 as the
basis for any of the education tax benefits described in
Publication 970. If the reimbursement is not taxable to
you, you can't use the expenses, and you can paper the
bathroom with the 1098-T.
I think you may have missed the point of the post. He wants
to know whether he is allowed to use $1000 of unreimbursed
qualified education expense for either the tuition deduction
or the lifetime learning credit even if he knows that the
$1000 will be reimbursed by his employer in tax year 2005.

I have always been of the opinion that a cash basis taxpayer
certainly can use his 2004 expense for a 2004 tax benefit.
If he gets reimbursed for the $1000 in 2005, he would have
to declare that $1000 as income in 2005 assuming he received
the full benefit in 2004.
 
K

koraky

It depends on whether the tuition reibursement is taxable
income or not. If it is, you can use the $2,000 as the
basis for any of the education tax benefits described in
Publication 970. If the reimbursement is not taxable to
you, you can't use the expenses, and you can paper the
bathroom with the 1098-T.
It does not show up on my 2004 W-2, but it could show up on
my 2005 W-2 (the first reimbursement was made only last
month). I these amounts show up on box 14 of W-2.
 
K

koraky

Another question: if the tuition reimbursement turns out to
be not taxable on my part, where does my company report
this? From my brief research online, it is put in box 14 of
the W-2 form if it is a reportable income. If I made the
mistake of claiming tax benefits on this non-taxable
benefit, how will the IRS catch this error?

Thanks.
 
Ad

Advertisements

M

MTW

A.G. Kalman said:
I have always been of the opinion that a cash basis taxpayer
certainly can use his 2004 expense for a 2004 tax benefit.
If he gets reimbursed for the $1000 in 2005, he would have
to declare that $1000 as income in 2005 assuming he received
the full benefit in 2004.
I'll take the other side of that argument and opine that you
can't claim a deduction for something so long as you have an
entitlement to reimbursement. In other words, you must be
fully "at risk" for the expenditure before you can claim a
deduction.

MTW
 
P

Phil Marti

Another question: if the tuition reimbursement turns out to
be not taxable on my part, where does my company report
this? From my brief research online, it is put in box 14 of
the W-2 form if it is a reportable income. If I made the
mistake of claiming tax benefits on this non-taxable
benefit, how will the IRS catch this error?
For starters, ask your employer whether the reimbursement is
going to be taxable income. My crystal ball is at the
cleaners.

As for question 2, they catch it because you tell them
through an amended return.
 
S

Seth Breidbart

MTW said:
A.G. Kalman wrote:
I'll take the other side of that argument and opine that you
can't claim a deduction for something so long as you have an
entitlement to reimbursement. In other words, you must be
fully "at risk" for the expenditure before you can claim a
deduction.
I'd claim that he's "at risk" until the cash is received.
Companies can suddenly go bankrupt.

Seth
 
K

koraky

So, if I don't get reimbursed for the other $1000 in 2005,
then I can claim it in 2005 even though I paid it in 2004?

I'll call the IRS and post back here what they say.

Thanks.
 
P

Phil Marti

So, if I don't get reimbursed for the other $1000 in 2005,
then I can claim it in 2005 even though I paid it in 2004?
No. You'd amend 2004.
 
Ad

Advertisements

K

koraky

The reimbursement will be non-taxable. However, since I made
payments in 2004, and the reimbursements (not guaranteed)
will come in 2005, I think I can claim credit in 2004 then
just report the reimbursements as extra income for 2005 even
thought they will not be reported in my 2005 W-2. Hence my
question: if I intend to cheat and not report this extra
income, and because it is not reported on my W-2, how will
the IRS ever know?

This could get messier because if I leave the company, all
reimbursements made within a year of my departure is
nullified and I will have to repay my employer.
 
S

Seth Breidbart

wrote:
This could get messier because if I leave the company, all
reimbursements made within a year of my departure is
nullified and I will have to repay my employer.
That's yet another reason to consider the tuition paid "at
risk" and therefore deductible in the year paid.

Seth
 
M

MTW

Seth said:
I'd claim that he's "at risk" until the cash is received.
Companies can suddenly go bankrupt.
If a good faith analysis of the facts and circumstances
indicates that the chance of receiving the reimbursement is
remote, then I would likely agree. However, if the risk of
bankruptcy is merely speculative or hypothetical, I
disagree.

MTW
 
D

David Woods, EA, ChFC, CLU

The reimbursement will be non-taxable. However, since I made
payments in 2004, and the reimbursements (not guaranteed)
will come in 2005, I think I can claim credit in 2004 then
just report the reimbursements as extra income for 2005 even
thought they will not be reported in my 2005 W-2. Hence my
question: if I intend to cheat and not report this extra
income, and because it is not reported on my W-2, how will
the IRS ever know?
Not even worth responding to.
This could get messier because if I leave the company, all
reimbursements made within a year of my departure is
nullified and I will have to repay my employer.
Either claim the credit and the reimbursement or don't claim
either. If you think you might leave the company, claim the
credit and see where the chips fall with what happens later.
 
Ad

Advertisements

K

koraky

After considering my options, I think the right way
to go is:
- use $1000 for credit purposes (the other $1000 has
already been reimbursed even though in a different year)
- if that other $1000 is reimbursed, I'll file a 1040X
amending my return and put down $0 -- which means I will
have to pay back the credit that I got
 
Ad

Advertisements


Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top