1098-T

Yes, your daughter should file a return to report the 1099 MISC and she should report the 1098-T form and all other educational expenses on her return since the amount in box 5 exceeds the amount in box 1. On her return she will answer Yes to the question Someone else can claim me as a dependent on their tax return. 

 

To report the 1099 MISC:

• Login to the Account.
• Select Federal from the left menu.
• Go to Wages and Income then Income and Expenses.
• Scroll down to Other Common Income
• Select Start next to Form 1099-MISC

 

 To report the 1098-T form:

• In the Federal return go to Deductions and Credits.
• Scroll down to Education and click show more.
• Click Start next to Expenses and Scholarships (Form 1098-T)

Yes, she needs to file a tax return, because of the $1500 1099-Misc. Income on a 1099-Misc is unearned income and the filing threshold for a dependent with unearned income is only $1100, rather than the standard $12,400 threshold. 

 

There is a tax “loop hole” available, for you to possibly claim a tuition credit.  The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

I entered the 1098-t on my daughter's return, TT taxed the whole scholarship amount (Box5) with no tuition deduction (Box 1). The difference as income between Box 5 and Box 1 is around $3000 only, how can I report this amount?

TurboTax (sometimes) assumes that the parent used some of the tuition (in box 1) to claim a tuition credit or deduction, so it reduces the amount applied against the scholarship.

 

Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.

 

You may reach that screen sooner.