My daughter is 19 and CAN be claimed as a dependent.However,she has scholarships paying for tuition,books,fees and some room and board.Waiting on her 1098-T but last year she had to pay. We are just wondering if we are filing the best way. Last year she put the 1098T on her tax return with her PT job and had to pay taxes.
No. Excess scholarship is taxable income on her return. You are not allowed to shift it to your return.
You don't really "put" the 1098-T anywhere. You use the info on it, along with your own records, to claim a tuition credit and/or report taxable scholarship.
There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
No. Excess scholarship is taxable income on her return. You are not allowed to shift it to your return.
You don't really "put" the 1098-T anywhere. You use the info on it, along with your own records, to claim a tuition credit and/or report taxable scholarship.
There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
How would I go about using the loophole? Do I need to do a paper return for this or is it possible to do with Turbotax online?
You can file thru TurboTax, online.
In TurboTax, you have to use a workaround. There are several ways to do it. The simplest way is just change the box 5 amount (at the 1098-T screen) to get it to work. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.
Using an example. Box 1 is $10,000 and box 5 is $20,000 and you paid $1800 in other expenses. Change box 5 to $8800. That way it appears you paid $1200 in tuition, out of pocket (1800 + 1200 = the $4000 you need to qualify for the maximum AOTC).
On his/her own tax return, your child reports $11,200 (20,000 - 8800) as taxable scholarship. At the 1098-T screen she enters 0 in box 1 and $11,200 in box 5
Thanks. I will try this. I hope I don't mess it up. Still waiting on the 1098T but may ask more questions later. Just thinking ahead after helping her file last year. I didn't know there was another way so she paid all taxes and nobody got a credit.
You can both file amended returns for 2017. She to report more scholarship income (about $4000) and you claim the tuition credit
She claimed all of the scholarship income last year. Only one semester was represented because it was freshman year. Box 5 was $5000 greater than box 1.
When you say "claimed all of the scholarship income last year", do you mean the entire box 5 amount or only the $5000 difference between box 1 and box 5?
What was in box 1 and box 5?
Box 1=$13561, Box 5= $18675. I followed all the steps that Turbotax asked for her taxes claiming the difference as income. It was confusing to me but they used our income to determine something about it. I have always understood our taxes ( I thought) until she ended up, thankfully, with so many scholarships. My son also has a larger box 5 than box 1 but by a smaller amount. He graduated in May but we are claiming him this year. I guess there might be a benefit to filing his differently. He did not owe taxes last year because his job plus the extra income was less than that required to owe more taxes than paid in.
You can still amend and get the credit for 2017. But she will also have to amend to pay tax on an additional $4000 of scholarship income. The education credit is worth $1000 to $2500 to you. Her tax should be much less.
"It was confusing to me but they used our income to determine something about it". That's the infamous "kiddie tax" where a dependent child's unearned income is taxed at the parent's top tax rate. Scholarships are considered unearned income. The kiddie tax was changed for 2018, under the new law, and will be more costly (trust tax rates are used, not the parent's rate). TurboTax will handle that
Great. I WAS kinda liking the new tax brackets and bigger standard deduction because it seemed like we may not be as hurt by our kids graduating and no longer being claimed by us. However, I guess that will be seen next year for sure.
So my son graduated in May and had a much smaller amount in Box 1...$2760. This did not include his books. However they would not bring the amount higher than maybe $3000. Does he claim the extra on his return or do we? He graduated and has been working for 3 full months. So far he will be getting back all that he has paid in.
The tuition credit goes with the student's exemption. If you claim him as a dependent, for 2018, you claim the tuition credit. If he claims himself, he claims the credit.
So that brings up the question, CAN you claim him?
Graduation year
If he/she was a student (under 24) for at least 5 months and lived with you for more than half the year, and did not provide more than 1/2 his own support for the whole year, you can still claim him. Be sure he knows you're claiming him, so he doesn't claim himself. He can only be claimed once. But, he can "file taxes" without claiming his own exemption.
The real question is who should be claiming him in this "transition" year to adulthood. You two have to agree on who is going to claim his exemption. Each should do their taxes both ways and see which way the family comes out best. Even then, you have to meet the rules. The rule is that a child of a taxpayer can still be a “Qualifying Child” dependent, regardless of his income, if:
1. he is a full time student under 24 for at least 5 calendar months of the year (graduating in May usually means you meet the 5 month rule)
2. he did not provide more than 1/2 his own support (scholarships are considered 3rd party support and not support provided by the student).
3. lived with the parent (including time away at school) for more than half the year
So, it usually hinges on "Did he provide more than 1/2 his own support in 2017.
The support value of the home you provided is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants. IRS Publication 501 on page 20 has a worksheet that can be used to help with the support calculation. See: <a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p501.pdf">http://www.irs.gov/pub/irs-pdf/p501.pdf</a>
He lived with us until mid September. We paid everything including his phone, car note and medical (through October) and car insurance. We even paid to move him and for alot of things he needed to get started. So he paid none of his support until October. He is only 22. So we will claim him this year. It would not benefit him to claim himself anyway and I guess he couldn't anyway since we can.
Well, I received my daughters 1098-T and have been trying to add things correctly to our tax return. I feel like I may have entered something wrong because Turbotax jumped our refund up by $4100 and told us we needed to upgrade to Deluxe to get our credits. I forgot about the "other" charges which include books so we show $4832 of education expenses leaving $9118 for my daughter to claim as scholarship on her return. I tried to figure out how to reduce our education expenses to $4000 even but don't know how to do that now. Why would our refund jump so much and why do we need more forms? I added my son and his education info didn't trigger an upgrade or anything. I do not want to upgrade if I have messed up something but can go no further without upgrading. Any ideas why the refund jumped so much?
You can't go by jumps on the "refund meter". It's only a work in progress. The end result is what counts. $4100 less tax (or bigger refund) doesn't sound unusual with two dependents in college. Review your return, line by line, to look for obvius errors. The education credit(s) is calculated on form 8863 and is split and entered partially on line 17 of form 1040 and line 50 (1040 schedule 3)
That was the jump not including my son. That's why I am concerned. I went back and put everything in showing box 5 greater than box 1 by about $5000 and it still shows a credit but less of one. I really don't get it. Both say to upgrade. Do I need to upgrade to be able to see the return line by line? The return was complete except for adding the 1098-T info.
When I was working on it with less showing in box 5, it asked questions about whether she used any scholarships for room and board. I read the info regarding that and it indicated she could move any money used for room and board from scholarship money not earmarked for tuition and fees to make her eligible for the tax credit. There were blanks available to enter this amount. That is why I went back to try with full amount entered in box 5. However, when I did this the opportunity to move money to room and board went away. It no longer asks those questions. It sounds like this is basically what we are trying to do.
I'm not familiar with TT upgrade steps. I use the download (desktop) software. No upgrades required.
If you are going to use the work around (and that's the only way to use the loop hole) by changing the box 5 amount, you stop there. You don't use the rest of the interview.
I have always used the free turbotax online because we don't itemize or have anything complicated...or we didn't. I guess I will upgrade to deluxe and see what forms they say I need to get the credit. If I get any credit it will cover the $29.99 and I guess, worse case scenario, I go back to not claiming the credit and having it all on the kids returns. I just don't completely get it. Thanks for your help.
I finally understand this process and found a great article explaining it even more. However, what I did not consider was that taking the credit and increasing my daughters unearned income to do so, may mess her up on the FAFSA. The AOTC will make our income almost $5000 higher and her income will be $5000 higher on the FAFSA. She receives a grant from her school based on the FAFSA numbers. Just wanted to share this in case anyone else in a similar "boat" reads this. All angles need to be considered. I already filed taking the credit but am now second guessing myself since the credits for my children are less than the grant she receives.
I have another question related to this question. I went back to 2014 ( my son's first year of college) and discovered we did take a $300 credit on form 8863 line 19. I think that was the LLC. We were looking to ammend tax returns to claim AOTC for him for 2015, 2016 and 2017 and claimed AOTC already for him for 2018. Are we allowed to take the AOTC for 4 years since he apparently used the LLC in 2014?
Yes, BUT, there are two "4 year rules" to be aware of:
1. You may only claim the AOTC four times for the same student
2. You may not claim the AOTC if the student has already "completed" 4 years of college. For most students that means getting a BS or BA, but it's possible to have meet the rule without degree. For sure, grad students do not qualify for the AOTC