Utilizing the American Opportunity Tax Credit to its Potential

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Who will determine if my expenses are qualified?

You will, with IRS guidance.

If my tuition is say $1000 and my texts are $300, does that mean I can go out and buy $700 worth of notebook paper and pens and get a $2000 tax credit?

Not unless $700 worth of notebook paper and pens are required by the school for enrollment or attendance.

Does everything I buy need to be itemized if I get audited by the IRS?

Keeping good records in the event that you need to defend taking a tax credit is common sense.