You did not mention how much her 1099 was for. You are correct, if this was a one time thing that was basically a one off or hobby, it would be considered regular income and not self-employment. If it is below the amounts you listed, it would not be taxable and she would not need to file a return. (Ex. If it was for $500, she would not need to file a return.) Other income is not the same as earned income so she basically has no earned income.
The 1098-T goes on your tax return, not hers. As a dependent, it would only go on her return if box 5 was greater than box 1. Then she would be responsible for taxes on the scholarships and grants that were not used for qualified education expenses. You would possibly be able to claim the education credits to help recoup some of the money you paid for her education.
Lifetime Learning Credit
- You can take this for an unlimited number of years
- Twenty percent of expenses up to $2,000
- Non-Refundable meaning this can reduce the amount of taxes you owe, but if your tax liability is less than the LLC, your tax will be reduced to $0 and the rest of the credit is lost.
- AGI is less than $180,000 if married filing jointly
American Opportunity Tax Credit
- Available for the first 4 years of college
- Max amount is $2,500 per student
- Partially refundable credit meaning if your tax liability is $0, 40% (up to $1,000) is refundable
- AGI is less than $180,000 if married filing jointly
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