Can our daughter claim herself and pay less or can we split the scholarships between our tax return and hers to reduce taxes or qualify for college deductions?

[kc4braves1]

Spoiler

I did see those instructions but I'm not amending. That is a total pain.  I have asked the university what the amount is for and they told me they would research it but to look at her online 1098T .... the amount is a link.  It says it is a "decrease of previous charges".  I have no idea for what. You would think we would know if we had been refunded money prior to 2020. We WERE refunded money in 2020 due to Covid but this indicates a "prior year".  So knowing they consider it a reduction in charges. what do I do with it?

[kc4braves1]

I just looked more closely at the information provided about the amount in box 4.  It is apparently money that we/she paid for a short January 2020 class. We paid it in December 2019 but it was actually for 2020.  This is what is posted as an explanation:

Detail of Adjustments to Charges Billed

1098T Future Year Prepay -$2,840.50

Tuition - Undergraduate $1,330.00

Term Total: -$1,510.50

Total All Terms: -$1,510.50

It's also presented this way:

Box 1- Payments ReportableTax Year Beginning Carry Forward of Un-Reported Charges Billed (A) Current Charges Billed (B) Current Decrease Previous Charges (C) Box 4 Adjustment (D) Cap Limit Charges Billed (E = A+B+C+D) Current Payments Received (F) Box 1 Payments Reportable (G = (Least E, F)) Ending Carry Forward of Un-Reported Charges Billed (H = E-G)

2020

$0.00

$31,018.00

-$1,510.50

$1,510.50

$31,018.00

$36,476.39

$31,018.00

$0.00

@Hal_Al ,does this shed more light on what to do with box 4? It didn't let me keep the formatting of the above table.  A through H are the column names. Thanks so much.

[Hal_Al]

Q. Does this shed more light on what to do with box 4? 

A. Not that I can answer with any confidence.

I don't think it effects your last year's return.   But, that amount, $2840.50, may be included in box 1 of your 2020 1098-T.  If you used that amount on last year's return, you'll need need to reduce box 1 when you enter in TT. 

[kc4braves1]

So.....after pouring over the numbers and trying to understand it all, I've come up with a new question. What if I don't claim the AOTC this year and claim her 4th year of AOTC on 2021 taxes?  She graduates in May but will have about half of what is shown this year so we should be able to move things around next year when we file.  

I looking at this years 1098T and the associated supplemental info the college website provides, it does appear that the $2840.50 was included last year.  I still haven't figure out how exactly they got that number but I guess we made 2 $1000 payments in December for her Jan class/trip and there was another payment also in Dec for $1450. I can't figure out what that was for but they come up with $2840.5 somehow.  The $1450 was for tuition ( plus a returned check fee oops) for the class which was actually charged in 2020.  I think that was actually the $1330 amount that they subtracted to get the $1500.50 adjustment.  However, they charged the $2000 trip fee in 2020 and it shows under the supplemental info on the 2020 1098T while the payment showed in 2019.  They seemed to have made corrections showing trip charges and payments moved to 2020 supplemental info.  So...I say it's a mess.  

She did not do a January Class this year so there should be less confusion.  I guess I still need to know what to do with these numbers.  If I just follow the turbotax questions, will it tell me what to with the amounts?  Also is there anyway to take the Lifetime Learning Credit this year or does this all mess that up as well?  Thanks for any thoughts on this situation.

[Hal_Al]

Q. What if I don't claim the AOTC this year and claim her 4th year of AOTC on 2021 taxes? 

A.  Yes, you can delay it if it works out better.  Although you can only use the AOTC 4 time, you can use the Lifetime Learning Credit (LLC) for the other calendar year.  The LLC is 20% of QEE up to $10,000. No part is refundable.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income.  If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.  If you don't know what the box 4 amount is for, ignore it.

[kc4braves1]

So....if the amt in box 5 is greater than box 1, can you take the LLC?  Does it work like the AOTC if you move more to taxable income?

[Hal_Al]

Yes, you can use the loop hole for the LLC as well.  But, it's not as generous as the AOC.  It's 20% of the tuition paid. So, if your son is in the 12% tax  bracket, you're coming out 8% ahead.  With the AOC, your were getting 62% (100% on the 1st $2000 and 25% on the 2nd $2000) vs. 12%.  Most students are in the 0% or10% brackets

[kc4braves1]

The majority of her income is scholarships and grants. She works sporadically at a pizza place . She owes taxes every year because of this but I'm not sure what bracket. Unless things change, and with covid precautions they may, she will make very little in 2021 because she will be doing internships/apprenticeships with stipends.  Another thing that I have many questions about.  Know anything about how taxes work for internships and apprenticeships where she will receive  a shared room in an apartment and a stipend for expenses?  Not really a paid position. That's what I need to figure out for 2021.....that and a side job she is trying grocery shopping for people ( Shipt and Instacart).  I think she will get a 1099-NEC for the shopping job if she akes more than $600. I think she can claim mileage but not sure if that is the case if she uses standard deduction.  Anyway. Thanks for explaining so much.  I will post again if I have any problems. I appreciate it!

[Hal_Al]

The first $12,400 is not taxed (standard deduction). The next ~$10,000 is taxed at 10% anything over at 12% (up to $30K). If she makes over $432 on the 1099-NEC, she will have to social security and Medicare tax, on that income in the form of Self employment tax (~14%). This is in addition to income tax.  She can deduct mileage in addition to the standard deduction (she will be filing schedule C).

There are no specific IRS rules for internships and apprenticeships. She'll have to ask the employer how taxes will be handled.. For example, will income be imputed for the housing.  If the housing is "for the convenience of the employer", it can be tax free.  Stipends can be reported on a W-2, or 1099-NEC or can be treated as tax free under an "accountable plan". 

Simple answer: using the loop hole with the LLC for one of her 5 college years is recommended. 

[kc4braves1]

Thanks. This post helped alot.  Hopefully, the places she interns will be forthcoming with this information.  Of course, covid could mess it all up....again.  Who knows but I feel more prepared to guide her.  She's about to have a degree in theatre design and...theatres most places are closed.  Gonna be a fun year. 

Thanks.

[Hal_Al]

@kc4braves1 

You didn't ask but here's another bid info for parents of recent, or upcoming, grads.

Can I claim my kid as a dependent for his 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 2019.

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: http://www.irs.gov/pub/irs-pdf/p501.pdf

[kc4braves1]

So we should be able to claim her and an education credit next year. I have a feeling she may be living with us for a while...but she won't be in school after May.

[kc4braves1]

I have another question. In the past, we have had to answer questions about our income when filing my daughters taxes. I understood that to be the "kiddie tax". This year and maybe last year ( I'm not sure), turbotax did not ask anything about our income. I never thought about it, while filing.  Should there have been a question asked and answered if we moved money from box 5 of her 1098-T to HER tax return?  I do see that Turbotax filed a Form 8615 for her with my husband's social and filing status.  She made very little at her job and it combined with the unearned income was less than $7000.  Could this be why I was not asked to input my husband's income or were they able to obtain info with social and info added the year prior?  I have a friend asking about the question on her child's taxes. She is not sure what line amount they are wanting from their taxes to put on daughters taxes for her unearned income.  Any help appreciated.

[Hal_Al]

The kiddie tax applies to dependents (and some non dependents), under 24, who are full time students and have more than $2200 of unearned income.  Although technically taxable scholarship is not earned income, it is treated as earned income  for purposes of the kiddie tax (and the filing threshold and the dependent's standard deduction).

[kc4braves1]

I am guessing turbotax didn't ask the questions about using parental income because my daughter made so little that no matter what tax bracket we were in her tax would be less than the standard deduction.  However, my friend WAS asked about their income for her daughters and was unsure what amount to use to determine tax bracket. I looked at the Tax bracket calculator and pointed her there. It used the taxable income and filing status. Hope that was the right info.  Thanks.