Full Scholarship TAX return

[StingerAlex]

Question:

Because daughter has an unearned income in the form of the scholarship, and it is considered to be an investment,  as we mentioned above, we have to file form 8615.

But in reality Turbotax every week postpones filing this form for a week - first it asked to wait till 02/13, than 02/20 and today it moved this date to 02/26/2020. At the same time IRS site has this form online and does not warn about anything.

Does it mean that turbotax will not be able to handle this situation with Form 8615 and I have to file the whole return manually?

[Hal_Al]

The paper form may be ready at the IRS, but the e form isn't. TT will, most likely, have it soon enough that you are better off to wait than to paper file.

[TG525]

Can someone post a detailed set of instructions indicating how to enter the following scenario into TurboTax:

my wife and I filing jointly, 2 kids (dependents) , 1 of them has a full ride athletic scholarship with a 1098-T (The amount paid to the school is about $9000.00 (line 1) the amount of the scholarship $27,000.00  (line 5)) So my college kid has to file taxes for the taxable part of the scholarship.  How do I enter that into my turbo tax and then hers?  Thanks.

[Hal_Al]

@TG525 - Do you have any other amounts? E.g. money spent on books and computers. Are the 1098-T numbers accurate. They look lopsided, as if the box 5 amount was for a different time period than the box 1 amount.

That said, you do not enter the 1098-T on your tax return. You cannot claim a credit as you are not out of pocket.  See possible exception below.  You kid enters the 1098-T on his return. Unless you enter additional expenses, TT will report $18,000 as taxable income (27,000-9000).

____________________________________________________________________________

 There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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 $27,000 in box 5 of the 1098-T and $9000 in box 1. At first glance he/she has $18,000 of taxable income and nobody can claim the American opportunity credit. But if she reports $22,000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

You essentially have to use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $4000 in box 1. No other numbers. You only enter the 1098-T to get TurboTax to check the proper box on form 8863. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.

Enter the 1098-T, exactly as received, on the student's return. In his interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is $4000. That will put all his excess scholarship as income on his return.  

Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s . The alternate workaround is  to enter $4000 less than the actual box 1  amount, when you enter the 1098-T on the student's return or $4000 more in the box 5 amount.

[TG525]

The 1098-T numbers are pretty close to accurate, box 1 being “Payments received for qualified tuition & related expenses” and box 5 being “Scholarships or grants”;  it is a full ride (NCAA Division 1, head count sport, full scholarship) so the amount of the scholarship is meant to cover room, board, tuition, books, meals and any other costs of education.  So the taxable part of the scholarship is large. 

[StingerAlex]

I might be wrong, but button "Maximize My Tax Break" is doing the same trick as playing with $4000 split between the returns.

What I did, as Kris said:

1.Put all my other income before educational 1098-T

2.Put 1098-T with all original numbers into my return.

3. Got an advise for daughter to file the tax return.

4.Put all expenses as Macbook, printer, books and e.t.c into my return in education expenses part of the interview.

5. Push "Maximize My Tax Break" button and got an education credit even though I did not pay for tuition.

On her return:

1.Put her W2 because it is more then $400 of earned income.

2. Put 1098_T with all original numbers.

3. DID NOT put any educational expenses on her return.

4. Put all additional scholarships not mentioned by the college in 1098-T.

5. Got the numbers for her to pay to Federal and State.

I did not try to put expenses on her return instead of mine because I might did not quite understand what Kris meant by saying "short cut" - did it relate to my return, or her? Correct me if I am wrong.

But other than this everything is pretty straightforward.

[StingerAlex]

The paper form may be ready at the IRS, but the e form isn't. TT will, most likely, have it soon enough that you are better off to wait than to paper file.

And till what date I have to wait for? They obviously plaing game, every day postponing later and later. What if they will play till the dead line? Form could be obtained on the IRS site, still not changed there, which means it is the final version of it.

So how long it makes sense to wait for Turbotax would design this electronic form ? 

[StingerAlex]

The paper form may be ready at the IRS, but the e form isn't. TT will, most likely, have it soon enough that you are better off to wait than to paper file.

And till what date I have to wait for? They obviously plaing game, every day postponing later and later. What if they will play till the dead line? Form could be obtained on the IRS site, still not changed there, which means it is the final version of it.

So how long it makes sense to wait for Turbotax would design this electronic form ? 

[StingerAlex]

Finally form 8615 apparently arrived because TT allowed daughter's return to fall through. And I ran into another problem.

TT interview asked daughter  about parent's, i.e. myself, income. It is very recursive math, mine is asking about her income, hers is asking about mine.

So going through the interview I stopped at the question "Parent's Qualified Dividends" with reference to the item 9b on my return.

But my 1040 does not have any 9b item at all, only 9. I did not have any dividends, I can put 0, but isn't missing item in 1040 telling me that something is wrong?

[KrisD15]

We have reported that. If you have nothing on line 3a of your 1040, please enter zero (0) and move on. 

Your 1040 should not have a line 9b.

[StingerAlex]

Thanks!

Kris, may I ask you - have you seen my post about what I finally did? Any problems? Am I correct interpreting your guidance? I need your final approval before sending my return to authorities.

[KrisD15]

@StingerAlex 

As David says, and I tried to make clear, 

the 1098-T DOES NOT GET ENTERED a second time on the student's return. 

Enter the 1098-T in your program, then follow the directions your program tells you in regards to what the student needs to claim, if anything. 

On her return:

YES- 1.Put her W2 because it is more then $400 of earned income.

NO- 2. Put 1098_T with all original numbers.

Enter any income your program told you to enter for the student 

Do not enter the 1098-T in the student's tax program 

Just enter the "additional scholarship" that your program told you to enter on her tax return

I used the excellent KrisD15 guidance:

1. If the student is your dependent, you enter all the forms (1098-T, 1099-Q) in your program so that TurboTax can do the math.

2. answered above

3. Yes, if you enter the 1098-T you enter ALL the expenses, books and all, room and board too.

Once you're done, your TurboTax program will issue instructions about what the student needs to claim (if anything)

The student may never need to enter the 1098-t on their return even if they need to file

4. Right, again, you enter it (the additional scholarships) so TurboTax can do the math, but if they are taxable, TurboTax will tell YOU in YOUR program that the student needs to file.

Yes, just enter the income she needs to report as scholarship income (and her other tax documents of course)

[StingerAlex]

Thanks a lot, Kris!

More I do this more I am confused, sorry.

So in her interview in Deductions&Credits:

After adding the student and filing out the fields regarding her college name I am running in the following question"

Did you get a 1098-T from the college?

If I answer "No" I will be asked about if she complys with listed exclusions which she is obviously not. So I answer "Yes" and the next page of interview is:

Type info from your 1098-T

which is the process of filling out all fields from this form. Should I omit everything? Try, but it forces me to put

first filers's tax ID and next page asks about school address. And then it starts asking me about boxes:

We Noticed There Was No Amount Entered for Box 1

What should I do? To leave it empty and go to the next page?

Here's Your Education Summary

Other Education Expenses (for all schools)

Scholarships/Grants (for all schools)

Education Information

At this point Scholarships is 0 and I have to edit it:

Did You Receive a Scholarship or Grant in 2019?

Let us know is you got a scholarship, grant or any of these

Fellowships

Employer-provided

Veterans education benefits

Other tax-free assistance

YES

Enter the amount you received . Don't include amounts already listed in W2

Other Scholarships/Grants/Fellowships

Veterans Education Benefits

Employer Provided Assistanse

At this point from what I understood  I have to put summary of the number I was given as her income in my 

interview and additional scholarship? Correct? Even though number in 1098-T is not "Other Scholarship" at all?

Am I correct?

I am very sorry, Kris, for disturbing you, but really the whole process is very confusing, plus something telling me that in the end of her interview she will get same numbers as she would put all numbers from 1098-T and math simply subtract box 5 out of box 1 and get same number I just put in the different field of "Other scholarship". I.e. sane was gotten in my interview. Basically it is the same process, just different fields, just a trick, or interview should ask different questions allowing me not to mention 1098-T at all in the return of dependent, and go straight to her questions about the scholarships and unearned incomes.

If I understood you correctly please confirm it.

Thank you so much for time!

[KrisD15 · Accepted solution]

Yes, I think you've got it now. YAY!

Leave the boxes blank on her 1098-T screen if it will let you get through like that. Just enter the amount she needs to claim and yes, enter it as if she received "other scholarships". 

I could have given you instructions for an easier way to report her income, but the way you are doing it is fine. 

(and YES, you could just leave box 1 blank and put the amount she needs to claim in box 5 on her return if that is easier)

Whatever YOUR program told you to have HER claim should show up on HER 1040. 

If you are still having issues, use the @ sign before my ID so I get a notice. 

like this 

@StingerAlex

@KrisD15

Hope this takes care of everything!!

[StingerAlex]

I did both ways, and return numbers are exactly the same. Could not be different, because we get them from the same math work, the only difference is in the first way TT calculates them within dependent's interview, in the second way I put ready number I received from the same math but in my interview.

[StingerAlex]

Kris, thank you so much!