Q. Who reports information on scholarships and educational expenses?
A. In this case, the student enters the 1098-T on her return in order to enter the scholarship as income and get it to line 8r on Schedule 1. If you end up claiming the AOTC (and it sounds like you should), you will also enter the 1098-T, on your return, with adjustments.
Q. So TT is calculating that she owns additional $790 in federal and $500 in state. These numbers just look very high in my humble opinion and make me wonder if I am doing something wrong. Does that sound right for you?
A. Yes.
Q. It just does not settle with me to ask for the AOTC if we really did not pay for any of her expenses.
A. The IRS actually encourages use of this technique. 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 even has examples of how to do the “loop hole”. EVERYBODY is doing it, most without the student actually paying any tax. She will be adding $4000 more taxable scholarship to her tax return (about anther $480 in tax) so you can get a $2500 credit. She could actually get about $1800 by claiming it on her return, instead. But, the family comes out about $1200 behind (you would have to forego claiming her as a dependent and the $500 other dependent credit).
Q. Do I need to calculate what part of that total scholarships received is actually for Spring 2024 expenses and input that here? Can I just leave that TT question with the answer NO?
A. Yes, answer NO. This is because the school correctly reported BOTH spring tuition and scholarship on the 2023 1098-T.
Q. Does it mean that room and board expenses my student had also need to be applied the same way the school calculated tuition cost?
A. Room and board are not relevant, unless you had a 529/ESA distribution.
