First, some clarification
Schools work in academic years. The IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 years degree. With that said:
Qualified education expenses are claimed/reported on the tax return in the tax year they are actually paid. it *does* *not* *matter* what tax year is paid *for*.
Scholarships, grants, and 529 distributions are reported as taxable income (initially) in the tax year they are recieved. It "does* *not* *matter* what tax year that scholarship, grant or 529 distribution is *for*. (The taxability of these items are offset by the qualified education expenses they are used to pay for "in that same tax year the money was received".
The 1098t has his name on it and he is not filing a return because we claim him and he has no income.
No problem there. But the student does have income. Keep reading.
The 1099Q has my name listed at the recipient and him as the beneficiary.
The 1099-Q gets reported on the tax return of the named beneficiary, *IF* that named benificiaries' income exceeds the threshold that would require them to actually file a tax return. Note that if the 1099-Q covers all qualified expenses remaining after scholarships/grants are applied, then the 1099-Q does not need to be reported on any tax return at all. (529 funds can be used for the unqualified but allowed expense of room and board, provided that room and board was in direct support of the education)
The 1098T shows what we actually paid (approx 7,600)in box 1 AFTER his scholarship of 5K that is listed in box 5.
The amount in box 1 of the 1098-T is the total amount received by the school from "all" sources in the tax year, for qualified education expenses. That includes scholarships, grants, out of pocket money, etc. But understand it only shows what was paid for the "qualified" education expenses of tuition, books and lab fees. Room and board costs are not included in box 1, since room and board is not a "qualified" education expense.
The amount in box 5 is the total amount of all scholarships/grants received by the student in the tax year.
If box 5 exceeds box 1, and if the school did *NOT* pay the difference to the student, then the school held it to apply to qualified education expenses next year. The TTX program can handle this just fine, so the student doesn't get taxed on what would otherwise be excess scholarship/grant money.
Also, understand that the 1098-T is most likely not all inclusive. Typically schools will "cut" the 1098-T for the student in the first week of december. But the expenses for the next semester are not paid until the 2nd or 3rd week of december. Therefore, the 1098-T box 1 may not include "everything" that was actually paid in 2020.
The best thing to do is to have the student log into their online college account, go to the financials section of their account and get you a printout of "everything". That will give you all the details that you "really" need, and those details will be more accurate than the 1098-T most of the time. Take note that if you have dated receipts for any out of pocket payments you may have made, those dated receipts trumps everything else.
what do I do about the fact that the money from 529 came in December but we paid tuition in January.
If the amount of the 529 distribution is more than $12K, then the student will need to report that on their own tax return since the student is the named benificiary on the 529. The student (not the parent) will be taxed on the amount over $12K, unless they have other deductions that would negate that. Then on the 2021 taxes next year, that 529 distribution recevied and taxed on the 2020 return, would be an "out of pocket" expense on the 2021 return, thus making it tax free and "canceling out" the taxes paid on it on the 2020 return.
In other words, over a period of two tax returns, it all "works out in the wash".
