I'm a single mother filing as HOH. I have 19 year old son that I claim as a qualified dependent who was a first year college student in 2020.
My son received a 1098-T with Box 5 is larger than Box 1 by ~ $3,000 (applied to room/board and other non-qualified expenses). My understanding is that my son needs to file a return and report the $3,000 as unearned income (because it exceeds the $1,100 unearned income threshold). My son has no income or reportable items of any kind other than the 1098-T unearned income from scholarships/grants.
We've used Turbotax to prepare (not filed yet) a separate return for myself and my son, but I could really use some advice/validation as to whether this is the correct way to file.
I entered the 1098-T my son received on my return. I also submitted an additional $1,740 in qualified expenses spent on a laptop (required for online school this year) and books. Although Turbotax warns me that my son will need to report the unearned income (difference between Box 5 and Box 1), it is giving me a refund for the full $1,740 in expenses under the American Opportunity Credit.
My son also submits the 1098-T on his return. He does NOT submit the $1,740 in additional expenses to offset the difference between Box 5 and Box 1. He states that he can, and will, be claimed as a dependent, therefore disqualifying him from educational credits. By submitting the 1098-T on his return, Turbotax captures his unearned income and prompts him to complete Form 8615 and provide my name, ss#, etc... In the end, Turbotax says that he has no tax due.
Questions:
1. Is including the 1098-T on both returns a valid approach?
2. Am I really allowed to get refunded for the $1,740 out-of-pocket qualified expenses under the American Opportunity Credit even if my son has unearned income to report from the scholarships/grants received?
3. If Turbotax states that my son has no tax due after reporting the 1098-T and 8615, does he still need to file? - I assume yes because his unearned income exceeds the $1,100 threshold but I am not sure.
This approach has allowed me to maximize my return by getting refunded for the $1,740 in expenses, while my son is simultaneously avoiding tax due on the unearned income from the 1098-T. Is this legitimate and should I be concerned that the IRS might flag either my, or my sons return?
