Education

@cindyh222

"In our situation, we have a freshman whose 2019 1098-T included Fall 2019 and Spring 2020 qualified expenses. The Spring 2020 expenses were paid in Spring 2020.  Do I include Spring 2020 on 2019 taxes as it shows on the 1098-T?"

Box 1 on a 1098-T reports what was PAID to the school in the tax year (2019). Spring 2020 could have been BILLED (Box 2) in 2019, but only what was paid in 2019 should be in Box 1. Make sure the school reported the 1098-T correctly. You can click the "What if this is not what I paid" link under Box 1 on the 1098-T screen and adjust if needed. 

"On the same 1098-T, another problem I have is the scholarships reported.  Only part of her scholarships for her Spring 2020 semester showed up on the 2019 1098-T.  So, if we report Spring 2020 qualified expenses in 2019, there will be scholarships that we won't be able to match with expenses for the 2020 tax year, not considering Summer/Fall 2020 qualified expenses."

You do need to keep track of the student's expenses and scholarships using the student's school account statements. If you will need the expenses next year, reduce that amount from the expenses you use for a credit this year. Here is what the IRS Says:

"Refunds received after 2019 but before your income tax return is filed. If anyone receives a refund after 2019 of qualified education expenses paid on behalf of a student in 2019 and the refund is paid before you file an income tax return for 2019, the amount of qualified education expenses for 2019 is reduced by the amount of the refund."

To make things more complicated, if the scholarship can be allocated to room and board in 2020, rather than tuition and fees of 2019, that would be an option for you. It would make the scholarship taxable for the student to report, but you would have more expenses for a credit. 

Yes, the scholarship the student received direct deposit would need to be claimed by the student. If fact, any taxable scholarship would be claimed by the student, but you would first enter that same information in your TurboTax program so that your program can do the math. 

Below is a link to IRS Pub 970. It has easy to understand examples of getting the best bang for your education buck. 

The main things to remember:

The American Opportunity Tax Credit is worth the most, maxes out at 4,000 expenses (so more expenses allocated to that credit in a tax year is silly) but can only be claimed 4 times per student. The Lifetime Learners Credit can use up to 10,000 in expenses, but is usually worth less.

Expenses can't be used for more than one thing, credit OR tax-free assistance (scholarships).

Only expenses paid in the tax year can go towards a credit for that year. 

Scholarships can cross the calendar year, just don't use the expense it paid twice. 

IRS PUB 970

IRS PowerPoint