21 year old stressed over taxes on scholarships. How do I proceed?

[Hal_Al]

The "trick" is actually a tax loophole But it also assumes the student is not his parent's dependent. Otherwise, he cannot claim the tuition credit (the parent gets to claim it on her return).

But (again), the parent is allowed to forego claiming the student, on her return, to allow the student to claim the non-refundable portion of the tax credit. Since the student has a tax liability, in this case, that may be advisable.

But (again), a student under 24 with no earned income is not allowed to claim the (up to $1000) refundable portion of the American Opportunity Credit.

As you can see, it's a very complicated situation, and the student (and parent) may seek competent tax preparation assistance and not try tackling it alone.  The parent may have to file an amended tax return to allow the student to claim the credit.  Even better, she may need to file an amended return to claim the tuition credit for herself (it's as much as $2500 while only increasing the student's taxable income by $4000. 4000 x 15% = only $600 tax for the student). The parent can use the loophole, as long as the student reports an equivalent amount of income on his return. For bridan, that means reporting $15,995 (11995 + 4000) income At, 10K - 20K income, the mother is probably getting EIC, for claiming the dependent.
If the parent will not divulge income, for purposes of the kiddie tax calculation, the taxpayer is allowed to use an estimate.

[TaxGuyBill]

@Hal_Al   Parent did not claim student as dependent, so student can claim the non-refundable portion on his tax return.  It seems like the OP doesn't want to deal with trying to get mom to claim credit, so the simplest way is for the OP to just claim the credit to eliminate any taxes via the nonrefundable credit.

Do you know HOW to 'force' an extra $2000 of scholarships to be taxable in TurboTax (thereby allowing $2000 of educational credits to qualify for the credit)?  I know what to do directly on the worksheets on the Forms, but have no idea how to do it in the step-by-step interview.

[Opus 17]

@Hal_Al @TaxGuyBill I based my answer on the fact that the student can be claimed but wasn't.  That enables the non-refundable part of the credit, which is why $2000 of tuition (or even $1000) would zero out the $500 or $800 of income tax.  The student would not be eligible for the refundable part, but here, zeroing out the tax is still a good outcome.

[Hal_Al]

A work around will be needed. I haven’t actually done it, but think you have to
change the numbers on the 1098-T. Later you’ll be asked if there were other scholarships and how they were used. You say they were used for room & board and not for  qualified expenses.
I agree, $2000 should be enough; maybe even $1500, depending on the kiddie tax effect

[bridan121895]

@Hal_Al @Opus 17 @TaxGuyBill Just to be clear and reiterate. I need to claim I received 15,000 instead of the 13,000. Should I also deduct the additional classes I took?

[bridan121895]

Basically I just want to understand why on earth i would want to go from 11,000 taxable to 15,000 taxable.

[bridan121895]

@Hal_Al Who do you recommend i go to for help with this situation? Do I need to visit a retail store such as HR, or would i need to climb up to a CPA?!

[Hal_Al]

Yes, you claim $15K, not $13K. The cost of the additional has already been adjusted for in the $2000 of expense you will be claiming.
CPA is usually best, but H&RB can handle it. Just don't go in the busy season (you'll get a rookie). Call ahead, to schedule an appointment with one of their experienced people.