1099Q--Enough expenses for Box2, but not Box1. Claim scholarship as income?

[gems77]

@Hal_Al 

We read some similar threads and think we might need our child to claim some scholarship money as income, but we weren't sure.

Our child received distribution from her ESA to help with college expenses.

When we filed our taxes we claimed the $4000 AOTC. 

Considering the 1098T + books+ computer costs  -  scholarships and the $4000 we claimed there is enough costs to still cover Box2 of the 1099Q, but she's a couple hundred dollars shy of covering the full amount of Box1.

Is it really only the Box2 amount we should worry about, or should she claim enough of her scholarship as income to balance things out with an eye to Box1 instead?  Again, we saw on another thread how to do that if we need to.

Thanks!

[Hal_Al]

She  should  claim enough of her scholarship as income to balance things out with  Box1.

It is only a portion of box 2 that would, otherwise, get taxed.  But the tax ratio is determined by the amount of the non qualified distribution. 

Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q  

Box 1 of the 1099-Q is $5000.  Since you only have $3000 of expenses, $2000 of the distribution is non qualified.  She would have to declare $2000 of her scholarship as taxable, to offset that.

[gems77]

Thanks!

[gems77]

Yikes!  She had already submitted her return, so trying to take care of amending it. 

We can fix the 1098T boxes, and we thought we would have to use a negative number to zero out the amount she had listed in book expenses.  However, when we get to the final review it doesn't like the negative number and shows us the Qualified Elementary and Secondary Tuition Smart Worksheet.  Since most of her needed school supplies weren't text books, she had lumped them all under what shows up as line 5 on the worksheet 'Other course-related', but when dealing with amending the 1098T it only lets us update what corresponds to line 3 and 4 (hence entering negative numbers seemed to be the only way to zero out the overall number).

Is there a way to access the 'Other course-related' number on this worksheet to zero it out?  Or are we going to have to work around this another way? (We even tried switching the answer to 'Did you pay for books or materials to attend school?' to No, and it still didn't zero out the numbers on the worksheet.

[Hal_Al]

First, don't amend until her original return has been fully processed.

Q. Is there a way to access the 'Other course-related' number on this worksheet to zero it out? 

A. I'm not familiar with the online software.  Try changing it in the "Total" column, rather than the "Qualified higher educational expenses for 529 Plan" Column.  If that doesn't work, You'll have to make the revisions in the interview.

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 the section you want to change; Other Education Expenses, in your case.

[gems77]

So we can follow all the steps in the online product to the point of clicking on Other Education Expenses, but for some reason it only provides 'Books and materials required..' which correlated to line 3 in the worksheet and 'Books and materials not required...'  which correlated to line 4 in the worksheet.

It doesn't give us the option of updating 'Other course-related' which is line 5 or give us a way to access the worksheet to edit directly.

I understand that you are not familiar with the online product, and may not be able to help further.  If you know another community member to suggest for the question that would be great, but maybe you can still help from another approach...

For our taxes we use the CD product.  Can it open the downloadable tax file from her online filing from which we can create an amended return to simply print and mail?

Thank you, thank you!

[Hal_Al]

https://ttlc.intuit.com/community/choosing-a-product/help/how-do-i-switch-from-turbotax-online-to-th...

[gems77]

Thank you.  My apologies, I should have been able to find that.

[gems77]

Questions upon questions.  Let me know if this one needs a new thread.

The amended federal return we could submit electronically from our CD based TT software.  When I gathered the printed documents for her to sign for the state amended return which has to be mailed, we noticed a warning against filing frivolous returns in the signature area of the amended state return.  The changes being made increase her income but not her tax liability (due to deductions), but we were filing the corrected information since without counting some of the scholarship money as income part of the ESA distribution would have need taxed.  In the box for why the return was being amended we put, "I am claiming some college scholarship money as income."

This sort of correction wouldn't be considered frivolous? 

[Hal_Al]

You don't mention which state.

Frivolous is subject to interpretation.   That doesn't sound frivolous to me. Many states require an amended return when the federal is amended.  I think the feds even notify them. 

I would change the wording to something like "amended federal return to add scholarship income".  On the other hand, I'd be tempted to call and ask if it was necessary to amend if the bottom line didn't change. 

[gems77]

Sorry, in Missouri.  The federal had a pace to list the reason. The state didn't have a separate place to write out an explanation, only a choice of reason which was A federal audit, B net operating loss carryback, C investment tax credit carryback, or D correction other than A, B, or C.  So D was selected and the date of the federal amended return was provided in the designated place.