Hello Hal_AI. Thank you for your assistance and guidance here. Appreciate the generosity!
I am parent with a son who just entered as a freshman at a local university in my state. We are lucky to have received abundant scholarship in his case. Just want to make sure if I can/should claim AOTC - we are in similar boat, scenarios similar to the above.
1098-T box 1 - $9,700 (Qualified Tuition) and Box 5 $18,300 (total scholarships) - leaving $8,600 in taxable scholarship and income for my son, based on my readings and your answers above.
1) I assume this is a taxable income on his return and we do not need to add it to our income? Regardless of whether we claim AOTC or not, if his taxable income is below the standard deduction limit (< $,$13.8K), does he need to file a federal tax return. Michigan has a flat tax rate so he will have to pay state taxes on his taxable income -- so I don't know if that means he should file a federal tax return, as well if he has to file state tax return.
2) Even if we had practically no out of pocket qualified expenses, is it okay to claim AOTC (as you confirm via above example/IRS guidance)? I hope the IRS will not ask for proof of out of pocket expenses (and will accept our reshuffling of the scholarship entries to taxable/versus non-taxable).
Let's say we use $11,000 as the taxable scholarship (bump it up by $2,400 above from $8,600). I want to understand how to handle 1098-T entry on his return and our (parent's) return. I assume IRS receives copies of 1098-T so I wonder if changing the $ figures will be against the law.
On his federal return: Do we do the entries for 1098-T to show the taxable income? or Just show the taxable scholarship number as income?
On our federal tax return: Obviously we will be entering the data from1098-T if we want to claim AOTC. Do we leave the 1098-T numbers and if so, how do we account for the $11,000 entry versus the actual entries on 1098-T - qualified at $9,700 and total at $18,300. And just to be clear, our out of pocket expenses we negligible (though he is a dependent and there is other non-college related expenses obviously).
Thanks!
