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I am planning on taking the Princeton Review course preparing for the GMAT (headed to business school). I know, I know... you can all laugh at me now for taking one of those over-priced review courses; it's just that I won't take the time to study without the impetus.

Anyway, my grandmother has begun "annual gifting" as a way of reducing her inheritance taxes. She has given me $10000 this year, but she can also pay for educational and medical expenses without adding to the total. Does Princeton Review qualify as an educational expense under the tax law? Or does it have to be a course for which I get college or graduate school credit?

Thanks,

Puck
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>>Anyway, my grandmother has begun "annual gifting" as a way of reducing her inheritance taxes. She has given me $10000 this year, but she can also pay for educational and medical expenses without adding to the total. Does Princeton Review qualify as an educational expense under the tax law? Or does it have to be a course for which I get college or graduate school credit?<<


I don't know the rules for gifting purposes, but, I imagine they would fall in line with the ones for taking the tax deduction for education as adult. In which case you would have to be able to show:

1. It was to improve/acquire needed skills in your current line of work;

2. Was not reimbursable; and

3. Would not lead to a new career.

The famous example that comes to mine is an business teacher who goes to law school. The teacher claims it so that s/he can be a business law professor at the college and at the law school. IRS says no because he did not need the law degree in his current profession or to teach business law. No deductions. I may have gotten this turned around.
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Re:
"gifting and medical/educational expenses".

There is no limit to the amount of money that can be
gifted to somebody for 'medical' or 'educational' purposes, but there are a few rules.

the first and most important rule is that the payment has to go DIRECTLY to the service provider (doctor/hospital for med expenses, school/tuition for educational expenses)... it can not go through the giftee (you can't cash a check from Grandma to pay your
tuition, she has to write the check directly to the college).

Next: You ask "what counts as a qualified educational expense".

For real information on this, I suggest you consult the "tax strategies board" here at Motley Fool. You will get (from KATinChicagoland probably) very good and accurate information on WHERE TO LOOK for the answers.

My off-the-top-of-my-head answer is that any secondary or post-secondary tuition is allowed (including technical training ?), but non-credit-based expenses (review courses for you, or maybe room&board for others) are NOT. But then I'm guessing.

The previous answer from gradfool is right-on IF you are looking for tax deductions for educational expenses, but does NOT apply for the 'gift' rules.

Check out the Tax Board ....
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<<the first and most important rule is that the payment has to go DIRECTLY to the service provider (doctor/hospital for med expenses, school/tuition for educational expenses)... >>
There is no requirement about what the education might contribute to your life. To be on the safe side, attend an accredited institution and you'll be fine. grandparents can pay for any kind of education- preschool, k-12, college, etc. Wish my kids' grandparents would. Maybe their childrens' gradnparents will ;)
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Interesting question and one I'm sure there is not an answer for.

Educational expenses must be paid directly by the donor to the educational institution. An educational institution is one that has a regular faculty and a student body. So, clearly college expenses would qualify. Even autobody school fees would qualify. In this case, I think you can make an argument that the expenses qualify for the exclusion from gifting. Princeton Review has a regualr faculty and a student body. (For instance, you are not paying your friend to tutor you).

So, have your grandmother pay the expenses DIRECTLY. No gift return needs to be filed so it is unlikely that the issue will ever come up.

BTW, IMO you essentially need to take these prepratory classes nowadays because everyone is taking them and you are at a disadvantage when you don't take them.
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