topic When doing deductions for education in Get your taxes done using TurboTax

Household income clarification?

wright-shane-bac — Tue, 04 Jun 2019 00:26:51 GMT

I currently live with my parents but they are not claiming me this year and I am doing my own taxes, when it asks for household income for education expenses, is that including my parents?

When what asks -- are you working on FAFSA?

xmasbaby0 — Tue, 04 Jun 2019 00:26:52 GMT

When what asks -- are you working on FAFSA?

Turbo tax is asking about it.

wright-shane-bac — Tue, 04 Jun 2019 00:26:54 GMT

Turbo tax is asking about it.

but where exactly?

SweetieJean — Tue, 04 Jun 2019 00:26:55 GMT

but where exactly?

Where in TT are you being asked that?

xmasbaby0 — Tue, 04 Jun 2019 00:26:57 GMT

Where in TT are you being asked that?

When doing deductions for education

wright-shane-bac — Tue, 04 Jun 2019 00:26:58 GMT

When doing deductions for education

Please be even more specific

xmasbaby0 — Tue, 04 Jun 2019 00:27:00 GMT

Please be even more specific

Expenses and Scholarships (Form 1098-T) under federal tab...

wright-shane-bac — Tue, 04 Jun 2019 00:27:00 GMT

Expenses and Scholarships (Form 1098-T) under federal tab and deductions it asks for household income right away.

Let's clarify some other things. How old are you? Are y...

xmasbaby0 — Tue, 04 Jun 2019 00:27:03 GMT

Let's clarify some other things. How old are you? Are you a full-time student? If you live at home, why are your parents not claiming you?

I am 20, full time but pay majority of my education, work...

wright-shane-bac — Tue, 04 Jun 2019 00:27:05 GMT

I am 20, full time but pay majority of my education, work full time and support myself other than housing.. figured doing my own taxes would benefit myself better.

@Carl Want to weigh in here?

xmasbaby0 — Tue, 04 Jun 2019 00:27:06 GMT

@Carl Want to weigh in here?

You don't get to choose if you can be a dependent or not....

macuser_22 — Tue, 04 Jun 2019 00:27:08 GMT

You don't get to choose if you can be a dependent or not.

While nobody can be compelled to claim a dependent, a dependent cannot claim them self if they can be claimed by another tax payer - the tax law does not allow that.

That is why there are two questions in the interview - *can* you be claimed as a dependent by another taxpayer, and *were* you (or will you) actually be claimed by that taxpayer?

In both cases the dependent will not get their own $4,050 personal exemption. If the answer to the second question is "yes" then the taxpayer claiming the dependent gets it, if the answer is "no" the exemption is lost, but the dependent is then allowed to claim certain educational credits that cannot be claimed by a dependent if they are actually claimed.

See IRS Pub 17 Personal Exemptions - Your Own Exemption
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p17/ch03.html#en_US_2016_publink1000170848">https://www.irs.gov/publications/p17/ch03.html#en_US_2016_publink1000170848</a>

You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you can’t take an exemption for yourself even if the other taxpayer doesn't actually claim you as a dependent.

Thanks for that info, but If i support myself doesnt that...

wright-shane-bac — Tue, 04 Jun 2019 00:27:10 GMT

Thanks for that info, but If i support myself doesnt that make me ineligible for my parents to claim me?

As a full time student under the age of 24 on Dec 31 of t...

Carl — Tue, 04 Jun 2019 00:27:11 GMT

As a full time student under the age of 24 on Dec 31 of the tax year, if you have more than $6,350 of reportable income in 2017 then you have to do a tax return. But for the education stuff I seriously doubt you are the one to claim it. My bet is, your parents' are.
" but pay majority of my education, work full time and support myself other than housing"
Monetary support is not by any means, all that counts here. There are some things that a student needs to understand, and the way the IRS words things in IRS Publication 970 do make it quite clear, but one has to interpret that document "literally" as written. Understand that regardless, it will "always" be better tax-wise for the parents to claim the student, *if* the parents qualify to claim the student. (In situations such as yours, it's rare that the parent would not qualify to claim the student as their dependent.)
For starters, the dependency exemption has to be determined first and foremost, before it can be determined who can claim the education stuff. Basically, it reads as follows in the IRS Pub.
- If the STUDENT did NOT provide MORE than 50% of THE STUDENT'S own support, then the parents qualify to claim the student as a dependent on the parent's tax return. Scholarships, grants, 1099-Q funds, gifts from Aunt Mary, etc., do not in any way count as the student providing their own support. The student can only provide their own support with money the student has earned in the same tax year the student paid that support.
Support is not just education costs either. It's also food, transportation, housing, clothing, and a few other tidbits.
As it stands, your parents provide you housing. The value of that housing is the fair market rental value of the space in their house that is exlusive to you. Most likely, that's your bedroom and that's it. The FMV of that space is the rent they could receive for it, if they rented it to a non-relative. The "childs rate" doesn't apply here. Its' the FMRV (Fair Market Rental Value). Then add to that your share of the utilities your parent's pay for. (Electric, gas, water, cable, etc.)
How pays for the healthcare coverage you are required to have by law? Your parent's I bet. That's support they provide you.
Enough of the details now, as I could write a multi-volume encyclopedia on this stuff. Check out the stuff in the answer box below. I have to post it in an answer box, because I can't do things with the font in a comment box. *every* *single* *word* *matters*.

Thanks for the helpful, detailed response Carl.

wright-shane-bac — Tue, 04 Jun 2019 00:27:13 GMT

Thanks for the helpful, detailed response Carl.

Overall, your family will come out better if your parents...

Carl — Tue, 04 Jun 2019 00:27:14 GMT

Overall, your family will come out better if your parents claim you as a dependent and your parent's claim all the education stuff. Oh, I forgot to attach the chart to my below answer. Makes it easier to understand the words that way. Attaching it now.

Oh yeah, you and your parents may want to utilize the sup...

Carl — Tue, 04 Jun 2019 00:27:16 GMT

Oh yeah, you and your parents may want to utilize the support worksheets at https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf The worksheets are presented for the parents to complete from their perspective. Not for you to complete from the student's perspective.

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

- Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”. The first one indicates a choice. The second one provides no choice.

If the student:

Is under the age of 24 on Dec 31 of the tax year and:

Is enrolled in an undergraduate program at an accredited institution and:

Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:

the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

Then:

The parents will claim the student as a dependent on the parent's tax return and:

The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent, then:

The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Now here’s some additional information that may or may not affect who files the 1098-T. If the amount of scholarships/grants exceeds the amount of qualified education expenses, the parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.) Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6200, then the student should file a tax return so as to get those withheld taxes refunded.

1099-Q Funds

First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred as follows depending on what type of 1040 you’re riling.

1040-EZ excess scholarship income is included on line 1.
1040-A excess scholarship is included on line 7.
1040 Excess scholarhip is included on line 7.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred as indicated above with one exception. For the 1040 excess ESA/QTP funds get transferred to line 21 with the annotation “SCH” next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.