If you want to claim the education credit, we start with education costs then the left over is scholarship income to the student. So $4k to you leaves $7250 plus all your other qualified expenses equals the remaining qualified education expenses available to be paid by scholarship. Subtract that from the scholarship for the taxable income.
1. If you qualify for the AOTC, $4k will maximize it for you. What education tax credits are available?
2. You do want to claim credits, they are much more valuable than a few dollars of taxable income to the student.
Don't forget, scholarship income brings the kiddie tax into consideration. See What is the Kiddie Tax?
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