Regarding the accounting, here is a hypothetical situation and I'd like someone to check the logic:
College costs for dependent student:
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Tuition: $10,000; Qualified Education costs (would be in Box 1 of 1098-T)
Mandatory Fees: $5,000; Qualified Education costs (would be in Box 1 of 1098-T)
Housing and Food: $15,000; Unqualified education costs (would not be in Box 1 of 1098-T)
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Total: $30,000
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Unrestricted Scholarship (can be used for any of above): $5,000
Accounting wise, the school lumps expenses and payments, including the scholarship in one general account, but will report the scholarship in Box 5 of the 1098-T
I have checked online, and it says as long as a person makes the payment directly to the school, the tuition is never considered a gift, it also says that a parent has leeway in terms of how the unrestricted scholarship is allocated when performing tax calculations regardless of how the school actually did it.
So, to avoid any need to fill out a 709 I assume that the scholarship is applied to Fees first, then Tuition, such that:
Tuition: $10,000 - not a gift, not reportable as gift
Fees: $5,000 - $5,000 scholarship = $0 - therefore no money to report
Housing and Food: $15,000 - while this is considered as support when used on a dependent and not a gift, if it was considered a gift, it is below the $19,000 gift threshold so no 709 needs to be filed
Is this good math? I did research and asked several AI's and I am told this is completely legitimate way to approach the problem. I also had several AI's say that since the housing and food is considered support when the college student is my dependent, the IRS wouldn't expect it to be reported as a gift even if it was over $19,000
I believe that most parents and advisors say that paying for housing and food for an adult dependent at college is not considered a gift and I have made a list of relatively recent references.
Gifts, Loans, Taxes and Your Adult Children
You can spend any amount on a dependent without the money being counted as a gift, so the gift tax rules will be irrelevant if your child is considered your dependent, regardless of how old he or she is.
If your adult child is your dependent, financial support is not considered a taxable gift.
What exactly are we talking about on paying for college? Do I have to worry about taxes when paying for college for my child?
Michael Barker: Jean, that’s a great question and a good place to start, because paying for your own child to go to college is fairly easy from a tax perspective. Because parents are deemed to have an obligation of support for their children, so, most payments for college expenses would not constitute gifts for gift tax purposes.
