Part I of the series discussed the most popular forms received at the end of the year that report income to the IRS. Part II focuses on other forms you may be receiving shortly that will help you offset some of your income:
Form 1098
This form will be sent to you by your bank or lender if you have a qualified home mortgage. The amount shown in Box 1 can be used to reduce your taxable income. It is entered as an itemized deduction on Schedule A. Unfortunately, if you do not itemize your deductions, you will be unable to take advantage of this expense.
Form 1098-T
This form is sent to any student who paid “qualified educational expenses”. Schools are required to send the form to the student by January 31. Once you receive the form, you will see one of the first two boxes filled out. If a school fills out Box 1, it represents how much was paid during the year for qualified expenses. Any amount shown in Box 2 represents the amount billed for the year. The amounts shown in these boxes will determine the amount of potential credit (American Opportunity Credit or Lifetime Learning Credit) or deduction (Tuition and Fees Deduction) available for your return.
Form 1098-E
If you received From 1098-T, you may be expecting Form 1098-E as well. This form shows the amount of student loan interest you paid throughout the year. The good thing about this expense is that it is an above-the-line deduction, which means you do not have to itemize in order to benefit AND it decreases your total Adjusted Gross Income. Up to $2,500 of student loan interest is deductible, depending on your income threshold.
Form 1098-C
This form is distributed less then the previously mentioned forms, but it relates to the charitable contribution of cars, boats and planes. If you donated any of these vehicles to a charity, you will be sent a 1098-C that shows the charitable contribution deduction for the year. This is another deduction that requires you to itemize in order to benefit (the actual deduction amount may be limited by your AGI).
There are many other deduction and credits available to taxpayers, but, for the most part, there will not be a corresponding IRS form to denote the expense. Above-the-line deductions such as educator expenses and moving expenses are based off personal record. Itemized deduction such as medical expenses and gambling losses are also documented by personal record. It is critical to document all of the expenses above, but I wanted to outline the type of documentation taxpayers can be expecting to receive in the coming days.
Stay tuned for Part III, which will discuss what you need as proof of insurance!
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