Should I report 1098-T on tax returns if tuition was fully covered by financial aid? Also server income tax filing help

But if the financial aid covered everything and was tax-free (like Pell grants), wouldn't reporting the 1098-T mean they might have to report some of the grant as income? I've heard that can happen if the grant exceeds qualified education expenses.

You're asking a good question about tax-free grants like Pell grants. If your financial aid exceeds your qualified education expenses, then yes, the excess amount would technically be considered taxable income. However, most students find that their qualified expenses (tuition, fees, books, supplies) equal or exceed their tax-free aid. The key benefit of reporting your 1098-T is that you might qualify for education tax credits, even if your tuition was fully paid by grants. The American Opportunity Tax Credit, for example, can provide up to $2,500 in tax credits, with up to $1,000 being refundable (meaning you can get it even if you don't owe taxes). This often outweighs any potential negative of reporting excess aid as income.

How does it handle tip income? I'm also a server and have always been nervous about doing my own taxes because of tips (both reported and unreported). Does it have a special section for that?

Did it actually save you more than what you would have paid to a tax specialist? I'm skeptical of these online tools because they sometimes miss deductions that a human would catch.

It has a specific section for handling tip income where you can enter both your reported tips (from your W-2) and any unreported cash tips. It walks you through calculating the correct amount to report and helps ensure you're meeting tax requirements while not overpaying. They even have special guidance for tipped employees. As for savings compared to a tax specialist, in my case it definitely did save me more. I was quoted $120 by a local tax preparer, but using taxr.ai I found education credits my previous preparer had missed. I ended up with about $1,800 more on my refund than I expected. The system checks for every possible deduction and credit you might qualify for, especially education-related ones like the American Opportunity Credit.

Wait, how does this actually work? Like, do they have some special line to the IRS or something? I've been trying to get through to ask about my education credits for weeks.

This sounds like a scam. How could they possibly get you through faster than just calling yourself? The IRS wait times are the same for everyone. I'll stick to waiting on hold for 3 hours like everyone else.

It's not a special line to the IRS. They use an automated system that essentially waits on hold for you, navigates the phone tree, and then calls you once they've reached a live agent. They're basically taking over the tedious part of waiting on hold. The reason it works is because they have the technology to handle multiple calls at once and navigate the IRS phone system efficiently. They're not doing anything you couldn't do yourself if you had unlimited time and patience. The difference is you don't have to tie up your phone for hours or sit around waiting.

Did you have to report any of your financial aid as taxable income when you filed? That's my biggest concern - that I'll end up owing money if I include the 1098-T.

I only had to report a small portion of my financial aid as taxable income. Basically, if your grants/scholarships exceed your qualified education expenses (tuition, fees, books), then yes, the excess amount becomes taxable. In my case, I had about $1,200 that was technically taxable since it covered housing costs. But here's the important part - even with that small taxable amount, the education credits (I qualified for the American Opportunity Credit) more than made up for it! I still ended up with a much bigger refund than if I hadn't reported the 1098-T at all. The key is making sure you claim all your qualified education expenses to minimize any taxable scholarship amount.

Try FreeTaxUSA instead. I used it for my student and server taxes and it was actually free for federal (state was like $15). They don't pull that bait and switch nonsense that TurboTax and H&R Block do.

The American Opportunity Credit is usually better though if you qualify (up to $2,500 vs $2,000 for Lifetime Learning). Plus AOTC is partially refundable while LLC isn't. But yeah if you've used AOTC for 4 years already or don't meet other requirements, Lifetime Learning is a great backup!