New Student Fee not listed on 1098-T

[vasto7]

Hello @Hal_Al 

Not sure what you mean when you say the full amount of bonds cashed are reported for “Report Educational Expenses and Benefits.”  The total cashed bond value is more than I can assign to R&B.  I can only assign the R&B value minus the amount I need to use for the AOTC credit, right? 

I actually have 2 students.  I hope that doesn’t cause a problem. 

For one of them I do not want to assign additional income to them other than the amount I need for AOTC, because they have other income and it would increase taxes owned. 

For the Student 2, assigning 3700 of scholarship to R&B gets the most AOTC credit I can get.  So that would leave 6,300 to assign to bonds.  So that is what I wound enter for “Report Educational Expenses and Benefits”? 

For Did Student 2 pay room and board with scholarship I would enter 10,000?

Some round numbers for Student2 are below.

Tuition = 32,000

Scholarships = 17300

R&B and other = 10,000

529 withdrawal = 24500

Amount needed to max AOTC = 3,700

Total Bond withdrawal = 13,000

Thanks.

[Hal_Al]

Q The total cashed bond value is more than I can assign to R&B.  I can only assign the R&B value minus the amount I need to use for the AOTC credit, right?

A. Yes. But, it's not really R&B that you're allocating. It's the tuition you're re-allocating  from scholarship. So, you're limited by the amount of scholarship that can be made taxable. Calling it R&B is just the TurboTax entry mechanism for making the scholarship taxable. 

You allocate the actual room and board to the 529 distribution. 

Q. For one of them I do not want to assign additional income to them other than the amount I need for AOTC, because they have other income and it would increase taxes owned.

A. It depends on how much other income they have. His wage income plus taxable scholarship does not become taxable until that total reaches $13,850 (the standard deduction, for that situation). Above that,  some will be taxed at only 10%

Q.   So that would leave 6,300 to assign to bonds.  So that is what I wound enter for “Report Educational Expenses and Benefits”? 

A. Yes, if that's the amount you decide on. 

Q. For Did Student 2 pay room and board with scholarship I would enter 10,000?

A. Yes, if you decide that only $10,000 of the scholarship will be taxable.  You're not limited to the actual R&B figure. 

[Hal_Al]

@vasto7  I think you're getting confused by the bits and pieces and entry screens. You need the whole picture like this:

Tuition = 32,000

Scholarships = 17300

R&B and other = 10,000

529 withdrawal = 24500

Amount needed to max AOTC = 3,700

Total Bond withdrawal = 13,000 

Additional info needed:

How much is the bond interest?

How much other income does the student have? From what source, W-2 or something else?

What is parent's marginal tax rate?

How much earnings  (box 2 of the 1099-Q) on the 529 distribution?

Was the 1099-Q issued to the parent or student (who is the recipient)?

Why are you limiting AOTC to $3700?

Be aware there is an income limit (MAGI) for claiming the savings bond interest exclusion. $106,850 for most filing statuses, $167,800 for married filing jointly.  The interest being excluded is added to AGI to determine MAGI.

[vasto7]

@Hal_Al 

You are certainly right that I am confused by all the bits and pieces.  I have all the information you stated is needed.  It is just a matter of entering it in the correct place. I am also doing 3 tax returns.  

I glean from above that I could designate the entire scholarship amount as taxable.  In that case the “Report Educational Expenses and Benefits”  would be (full scholarship amount) – (amount needed to get max AOTC credit)?

[Hal_Al]

Q. I glean from above that I could designate the entire scholarship amount as taxable. 

A.  Yes, assuming none of the scholarship is restricted.  But, you need to decide how much to make taxable for the best tax benefit. 

Q.   In that case the “Report Educational Expenses and Benefits”  would be (full scholarship amount) – (amount needed to get max AOTC credit)?

A. Yes, if you decide to make it all taxable. 

Earlier you said you had $2500 of savings bond interest. Then you said you had  Total Bond withdrawal of $13,000.  2500 / 13,000 = 19%. That means for every $100 of scholarship (over the standard deduction) that you declare taxable, only $19 of the interest will be excluded. Probably not a good trade off. 

The same analysis is applied to the 529 distribution. Expenses allocated to the 529 / distribution = percentage of earnings that are tax free.

The simple math is make only enough scholarship taxable to get to the standard deduction (13,850). 

[vasto7]

I was just trying to understand the limits.  It still seems odd that it can exceed the bond value and the R&B.

I plan on doing an optimization.

I'm sure I'll have more question.

Thanks for your patience.

[vasto7]

During the review of one of my child's return I get this question below.  Should I enter the amount I used to get the AOTC or the total amount of scholarship I made taxable, which includes the amount I added in order to use bonds or something else.  This question only came up for one of my children's returns.

[Hal_Al]

Q. During the review of one of my child's return I get this question: Should I enter the amount I used to get the AOTC or the total amount of scholarship I made taxable, which includes the amount I added in order to use bonds or something else.

A. It depends. 

TurboTax (TT) knows your student is not eligible for the AOTC, on his return because he has earlier indicated that he is being claimed as a dependent. So, the purpose of this question is to determine how much of the scholarship is taxable.  If you already told TT that but indicating that much scholarship was used for room and board, don't duplicate here. Don't enter anything at this screen.  

There's actually a short cut when doing the student return, in this situation. Enter the 1098-T with 0 in box 1 and the taxable amount in box 5.  Then, you don't have to enter any other amounts.  

Since, this can get complicated be sure to verify that  the correct  taxable scholarship amount gets entered on line 8r of Schedule 1. 

You said "I was just trying to understand the limits.  It still seems odd that it can exceed the bond value and the R&B." 

I'm not sure what that means. Limits of what? What is "it"?  The only limit on making scholarship taxable, is the amount of the scholarship (unless the scholarship is partially or totally restricted). 

[vasto7]

I cleared this box as you suggested because already told TT this by indicating that much scholarship was used for room and board.  However, I tried other values there and it did not seem to make any difference.  But I'm glad to do it correctly.

I verified the line 8r in Schedule 1 has the full amount designated as taxable (i.e., was specified as being used for room and board) for both child returns.

You suggest that I go to the 1098T on the child returns enter 0 in box 1 and the taxable amount in box 5.  Currently the 1098T entries for each child on the child returns match the 1098T on my return.  Is making the edit you suggest on the child 1098T necessary since the line 8r Schedule 1 value is correct?  Again happy to do what ever is best practice.

You said

"I'm not sure what that means. Limits of what? What is "it"?  The only limit on making scholarship taxable, is the amount of the scholarship (unless the scholarship is partially or totally restricted). "

I meant the limit on how much of the scholarship could be made taxable.  Thanks for verifying.  This must seem obvious for someone versed in tax rules, but not so much for me.  Sorry for being obtuse. 

Thank you!

[Hal_Al]

 Q.  Is making the edit you suggest on the child 1098T necessary since the line 8r Schedule 1 value is correct? 

A.  No.  It's just alternate (and easier) way of doing it.  The way you did it is "more correct", but as you discovered, can get complicated. 

[vasto7]

The I-Bond income I mentioned previously is from an account owned by me.  However, the bonds are issued with the registration My Name or My Wife's Name. When entering the interest income TT askes:

This interest belongs to:

Me,

My Wife,

Both

I have selected me, because it is my account, but is that correct?

Thanks.

[AmyC]

That is fine. You are MFJ and it is reported on the return with one of the names listed and social. The information goes into a worksheet with the totals on the tax return.

[vasto7]

@Hal_Al 

Going back to this question.  I did not notice this before, but when I leave the cell empty and press continue, TT tries to fill it in with a value.  In one case it is 10,000.  When I clear it and hit return, it does not stay clear.  Should I let TT fill this or should I enter a zero.

[Hal_Al]

Try 0. Do not let TT fill it (that duplicates what you already did by making some of the scholarship taxable).

If 0 doesn't work, reply back for a workaround. 

[vasto7]

@Hal_Al 

It will take 0.

Thanks.