1. Yes, the new tax law (effective 2018) made scholarship income subject to the "kiddie tax" (form 8615). "Child with Investment Income" is some what of a misnomer. It's child with unearned income. Although scholarships are earned income for purposes of the standard deduction, it is not for purposes of the kiddie tax )or Earned Income Credit).
I understand that room and board and any excess of the box 1 amount is now child unearned income this child has to report in the personal tax return. What I do not understand why this calculation has to depend on my taxable amount from the Line 19 of my 540 form, especially my return includes only non-taxable tuition part of the scholarships. I do not see any logic. My taxable amount does not depend upon her education fees, but in turn, affects her return. It is strange and not straightforward. It is my dilettante's feeling. 🙂
2."I then started new return for my daughter, at this moment turbotax already knew what I put in my return regarding her higher education, and come up with numbers in boxes 1 and 5". No, that's not possible TT does not have that capability
But starting her return I never put any college information, but somehow program came up with numbers from 1098-T.
Her return: Federal taxes --->Deductions---->Education---->Did You Pay for Books or Materials to Attend School? ---> Scholarships and Financial Aid ----> Did you receive a Scholarship or Grant in 2019?
At this point I answer "yes", but program already shows "Scholarships/Grants/Fellowships listed on 1098-T", exact amount, without asking me any information about the college, only having daughter's personal info.
How? 🙂
There is one more confusing thing. I include her 1098-T into my return, and going through the turbotax questions put the cost of the books, materials and equipment, it is more then $2000, because the only macbook is $1800, into my return.
Then we are going to her return, to Deductions----> Education----> "Now Let's Gather Your Additional Education Expenses"---->"Did You Pay for Books or Materials to Attend School?". I answered "no", but program at least has to help with making the decision on how to answer. If I answer "Yes", I will double report same money on two returns.
