New Student Fee not listed on 1098-T

[vasto7]

@Hal_Al 

For one of my children I need to provide information for from form 8615 and the work sheet.

Line 4 and Line 5 are zero.  But I am having a little difficulty with the other entries.  I only have entries for worksheet 3.  The TT guidance seems to indicate Net Qualified Dividends are WKS 3 line R.  That is 0.  

Total Net Capital Gains are WKS 3 line B,  which is 0.  But Net Capital Gains are supposed to be from WKS 3 line S.  But my worksheet ends at line R, Which is zero.  What should I use for Net Capital Gains.

[Hal_Al]

@vasto7 

I'm unable to help you with form 8615, other than this comment: you appear to be making entries on the work sheet, rather than following the TT interview. 

To get to the interview, 

In TurboTax (TT), enter at:

- Federal Taxes tab

 - Wages & Income

Scroll down to:

-Less Common Income

  - Child's Income (under age 24)

[vasto7]

I am using the interview process.  The first image is a screenshot of the interview.  The other images are what comes up when you click on the learn more.    The "learn more" seems to have an error since it is referring to line S, when the worksheet seems to end at R.

[RobertB4444]

Based on everything that you've discussed so far all of the entries for the 8615 should be zero.  You should be fine leaving all of those lines blank and moving on.

@vasto7 

[vasto7]

Hello @Hal_Al 

You have been a big help over the last few years in guiding me how to qualify for the AOTC.  I have a related question that I was hope you can help with.

I am trying to do some tax planning before the end of the year in order to guide how much money to withdrawal from my 529 account.

As I did last year, for my children I'm paying all tuition, fees, room and board, minus a scholarship, through a 529 distribution. Also, like last year, in order to get the AOTC credit I am assigning $4,000 of a scholarship for my child to room and board (making it taxable on my child’s tax return.  However, I am coming to the realization that I will have more funds in my 529 account than my children will use in there undergraduate  carriers.  I know this can be used for grad school, fund a Roth IRA, etc.  Notwithstanding these strategies, I was wondering if it would be legitimate to take an even greater distribution from the 529 account (still less than the scholarship amount) in order to ultimately lower the balance when they are finished school.

I would assign this additional distribution to my child’s room and board (make taxable to them).  For example:

Tuition $32,000

Scholarships = $17,300

R&B and other = $10,000

Qualified Expenses ($32,000+$10,000-$17,300) = $24,700

529 withdrawal = $30,000

Amount of 529 withdrawal over Qualified Expense ($30,000 - $24,700) = $5,300

Amount needed to assign to R&B to max AOTC = $4,000

Total amount of scholarship to assign to R&B = ($5,300 + $4,000) = $9,300

I have been playing around with the withdrawal amount to optimize the taxes on my kid’s returns.  A

Does this all seem Kosher.  Are there any pitfalls to watchout for in TurboTax to make sure this is done correctly?  I will be doing my return and my children's' returns.

Thanks for your help.

[Hal_Al]

@vasto7 

Yes, all of that is Kosher. You don't have to literally assign the  scholarship to R&B . You just call it taxable income (calling it R&B is just an entry technique in TurboTax).  Assign all the R&B  expenses to the 529 distribution. So, for your numbers, none of the  $30K distribution is taxable. Even when some of it is taxable, it's only a portion of the earnings (box 2 of the 1099-Q) that gets taxed. 

Q. Are there any pitfalls to watch out for in TurboTax (TT) to make sure this is done correctly?

A. Yes. Theoretically, TT can handle all this. But, it gets  tricky.  It's best if you have some idea of the outcome expected, when you make your entries.  Reply back, at tax time, if you encounter any problems.  Work arounds are available.  Simply not entering the 1099-Q (when you know  none of it is taxable) is one simple method.**

If the student has no other income, you can make up to $14, 600 (the 2024 standard deduction) taxable and the student will pay no tax. So, you can shift more of the expenses to a bigger 529 distribution. 

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the filing requirement ($14,600 for 2024) and the dependent standard deduction calculation (earned income + $450 (for 2024)).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  

**You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. 

References:

1. On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 

2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying r