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Optimizing education credit effect on state tax


joanmcq

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Client is grad student whose entire tuition was paid by scholarship. I put the info into ATX's education credit worksheet and hit 'optimize' just to see what happened. And what happened was that the client benefits by including all of the scholarship as income and taking the Lifetime Learning Credit. However, he owes for CA. I'm wondering though, if I could exclude the scholarship income for CA, since there is no CA benefit.  Or do CA statutes require conformation?

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4 hours ago, cbslee said:

Oregon's personal income tax law starts with Federal AGI and then makes additions and subtractions to reach Oregon AGI.

Doesn't CA go thru the same calculations ?

Yes, it does.  But CA std deduction is much smaller than Fed, and rates move up quickly on single individuals with no dependents.  Without the education LLC to offset the additional income from including the scholarship amount, there is a good chance the TP would have a balance due.   Depending on the size of the scholarship and other income items, it could be a significant amount that CA taxes increase. 

I don't know the answer to the question, but I am watching this post for someone smarter than me to reply.  This could be a very interesting way to prepare student tax return if it is allowed to choose one method for CA and one for Fed.

Tom
Modesto, CA

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