Q. Will we need to file the 1098T on my taxes?
A. No. The 1098-T is only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. You need to determine that. TurboTax (TT) can help.
Q. It asked if anyone is attending college, I know i need to answer yes but do i need to add any income into this?
A. No. if any income is to be reported, it goes on the student's return (if he even needs to file). If taxable scholarship is his only income and it is less than $12,950, he is not required to file a tax return.
There is a tax “loop hole” available to allow you to claim a tuition credit, even though you paid no tuition. . The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), 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 conditions of the grant are that it be used to pay for qualified expenses. Pell grants are typically not restricted.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit (AOC). But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return. $4000 is the amount needed to claim the maximum $2500 AOC.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.
In this example, if that $5000 (or $6000) is his only income, he is technically not required to file a tax return (it's less than $12,950). But, you may want to have him file anyway to document that he reported the scholarship as taxable income (to allow you to claim the credit).
This is not some sinister scheme. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 actually has examples of how to do the “loop hole”.
