Entering 1098T and obtaining AOTC--Do I have this right?

[MJJS02]

I have read and reread several threads.  Every time I think I have it all together, the details elude me.

Our child's university has been recording things incorrectly on the 1098-T, basing box 1 on charges not payments in a given year.  We didn't understand that was what happening last year (her first semester of college).  So we'll have to amend her taxes to be taxed on more of the scholarships/grants.  I think in answering this year's tax question, I'll know how to amend it.

So numbers (slightly simplified):

$10,000 Payments to schools for qualified expenses

+     120 Books purchased outside the school for classes

$10,120 Total qualified expenses paid

-    4000 AOTC

$   6120

-    7700 Scholarships and Grants

$  -1580 What the child will end up claiming as taxable scholarship income

There were distributions from the child's ESA, but they are less than the expenses of room & board, so they would not be recorded.

Room&Board        >          ESA disbursements (1099-Q)

$9739                     >            $6061.08

Do I have the process of how to look at all that correct?

If so, there is the question of how to enter that all into TT.  We use the desktop; child uses the online.

The parent taxes should be done first and then the child's taxes. For the 1098Ts on ours we just enter $4000 as being box 1 and $0 for box 5 of the main 1098 and then proceed.  Is there any harm in listing the second 1098 (for a single CC summer course) but not entering a box 1 and box 5 amounts or best not to include it?--it asks if there is another and habit is to answer the question asked. 

Then on the child's taxes they enter the full smaller 1098 and the remaining box1 amount from the main 1098 (full amount less the $4000 used on ours) and its box 5 amount.  TT will allow recording of book expenses after the 1098T questions (true on the online version too?). TT will automatically calculate the excess scholarship money and record as income with a special notation.  There is no need to enter the 1099Q since it is more than fully offset by room&board.

So did I get that right too?

Thank you!

[Hal_Al · Accepted solution]

Yes, your math is correct.

Yes, do NOT enter the 1099-Q, at all. 

Yes,  for the parent's taxes,  just enter $4000 as being box 1 and $0 for box 5 of the main 1098 and then proceed. Don't enter the 2nd 1098-T. It has no effect and just risks errors being made. 

Yes, you have the entry method for the student's return correct too.  Verify the output before filing. Although you could use a short cut: Enter the main 1098-T with numbers in boxes 1 & 5 that force the answer ($1580 taxable scholarship).

If the $1580 is her only income, technically she does not need to file a tax return.  But, you may want to do so, anyway, to document the taxable scholarship, that allows you to claim the full AOTC. 

[MJJS02]

Student does have a little other income.  Do like the idea of filing to document the parent AOTC.  

Thank you so much!

[MJJS02]

@Hal_Al Amending: Whether to do so?

It figures that I have a follow-up question.  I was working on amending 2020's tax return once I was home for the summer and could have my folks' help.  When I get all through entering the corrected numbers based on what we learned in preparing 2021's (with the misleading 1098T figured out), it isn't going to change how much tax I owe or would be refunded.  Some threads seem to indicate that submitting the amended return with no change in the outcome is not to be done.  Yet, without amending I would in essence be claiming to have paid some of the charges twice, in 2020 & again in 2021.  I wonder if I put myself at risk of audit.

** Should I proceed with amending to properly reflect charges paid and the different income amount?

** If yes, what is recommended for 'explanation of changes' (reason for amending)?  Increasing income scholarships?

Thank you!

[Hal_Al]

I would not bother to amend, since nothing changes. Your risk of an IRS inquiry is low.  Just amending is more of a red flag than the erroneous calcs.  Any 'explanation of changes' you use is also likely to be a red flag.

[MJJS02]

Thank you for the reassurance!