Separate Return for Child

[ni9]

My 20 year old daughter has 2019 earned income about $3500, claimed her as dependent on my return, when I do her return it shows I owe about $170, since standard deduction is about $12,200, don't have to even file the return, why is it showing I owe tax, doesn't it supposed to show zero tax?

Can I split the 1098T to show expenses on my return and show scholarship in my daughters return, will that help for me to get a bigger AOTC?

[VolvoGirl]

Did she get a W2 or 1099Misc for it?  If she got a W2 under 12,200 she doesn't have to file except to get back any withholding.  She has to file for a 1099Misc and pay self employment tax on it.

[Carl]

$170 is awful darn close (if not spot on) for the self-employment tax that would be paid on $3,500 of self-employment income. If she has more than $400 of self-employment income, then she is required to file a tax return and she "will" pay the self-employment tax. There is no exemption from that.

Your daughter's earnings have no impact on you claiming her has your dependent. As a college student, she could have made a million dollars (literally!) and still qualify to be your dependent.

Can I split the 1098T to show expenses on my return and show scholarship in my daughters return

No. If your daughter claims the education stuff, she will not get one single penny of the education credits because she does not have the *TAXABLE* income to take any credits against. You the parent should claim "ALL" education expenses and scholarships.

The only exception would be if the total of all scholarships, grants and 529 distributions received *IN 2019* exceeded all qualified and allowed education expenses paid *IN 2019*.

[DavidS127]

Note that the standard deduction for a person claimed as a dependent on another person's return is not necessarily $12,200.  For the circumstances you describe, the standard deduction for your daughter would be $3,850.  See the IRS guidance at this link.

Because you claim your daughter as a dependent, the Form 1098-T goes on your tax return for the education credits.  But, if the scholarship exceeds your daughter's qualified education expenses (in which case you won't get any education credits) the excess of the scholarship over the qualified expenses must be reported as income on your daughter's tax return.

[AmeliesUncle]

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@ni9 wrote:

Can I split the 1098T to show expenses on my return and show scholarship in my daughters return,

will that help for me to get a bigger AOTC?

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Yes.

Maybe.

Generally, the amount of scholarships used for tuition is tax free.  But in most cases she can CHOOSE to make more of the scholarships taxable, rather than applying that against tuition.

The purpose of choosing to make part of it taxable is because that then leaves more tuition left for you to claim a credit.  In most cases, $4000 of tuition is the amount you are aiming for.

So let's say the 1098-T shows $7000 in tuition and $6000 of scholarships.  Left alone, that give you $1000 of tuition to get a educational credit.  but in that scenario, it often makes sense for your daughter to intentionally make $3000 taxable.  That then allows you to claim $4000 of tuition, which will 'max out' the American Opportunity Credit.