Can I report different gross incomes on my federal and state returns? In my case, it's because I want to maximize the AOTC on my federal.

[dhlundberg]

To maximize the American Opportunity Credit, I am reporting more of my scholarships/grants as income in order to claim qualified expenses of up to $4000 (which is a recommended method by the IRS on p. 16 of the 2017 Tax Benefits for Education and also happens to significantly increase my federal return). However, on my state return, it is more beneficial to report my scholarships/grants normally and not as income. 

Essentially, this means that on my federal return I will be reporting more gross/taxable income (from scholarships/grants) than on my state return. Can I have this discrepancy in gross/taxable income as long as both returns are accurate? Both reporting methods are fine and legal, but I just want to know if I can use one method on my federal and a different method on my state to maximize both returns. I am aware that I will have to e-file my federal and then paper mail my state if I am allowed to do this.

[KrisD · Accepted solution]

No, I'm not sure which state you are reporting to, but the scholarship can't be reported as income on one, and not on the other. There are states that do not tax scholarships, so you might not be taxed on it. The scholarship income will pull over to the state in the TurboTax program and if there is an ability to eliminate the scholarship income from the state return, the program will give you that option. 

CLICK HERE for IRS Pub 970 Education Credits