2022 return questions

[john clay]

THIS is NOT SPAM ( to my knowledge). to whoever rejected my attempt to post. I sure hope someone can help me here because I am at my wits end!!! Here is the situation in a nutshell... a big nutshell:

--18 year old college student, my son, NOT a dependent as far as I can determine. Dealing with taxes in relation to his first freshman semester. A commuter, living at home. FULL scholarship, PLUS MORE.

--His 1098-T seems completely incorrect for box 1---$719.50 (ACTUAL   tuition/fees paid to school for fall is $5022.50) School will not amend the$719,50  amount, which was somehow caused after they refunded his entire 529 distribution. The 529 refund was AFTER his scholarships had paid the $5022.50, and school had ALSO refunded his excess scholarships/grants.

--Box 5 of 1098-T is $11, 923.50 (That IS the correct amount of all scholarships/grants, and does NOT include 529 distribution)

---REFUNDED excess scholarship/grant total is $6901.00

---REFUNDED 529 distribution is $4302.00  

---He is recipient/beneficiary of the 529 plan (family friend is the owner).  MPACT prepaid tuition ( in Mississippi).  For paying ONLY qualified   tuition/fees, or else the earnings are taxable.

---1099-Q info:  box 1: $4302.00 (distribution)

                              box 2:$2086.68 (earnings)

                               box 3: $2215.32 (basis)

---SCHOLARSHIPS/GRANTS Total %11,923.50. Include the following:

    ---PELL GRANT--$3448.00

    ---HELP GRANT--$4303.00   (Mississippi, state need-based grant)  

    ---Delta State Full tuition/fees merit scholarship-- $2713.13 (for qualified                     tuit./fees only)

     ---Honors scholarship--$500.00

     ---J. Sanders merit scholarship -- $959.37

--So, the school billed MPACT, and the distribution, $4302, went to     

 the school.  We THOUGHT they would apply it to tuition/fees.  They did       not.  It was REFUNDED to my son.

--He works too.  Income $11.,054.79 on his W-2

--He also received Soc. Security Survivors benefits Jan thru June, total of     .$12, 846.00.

Well, that is about it!  I , the MOM, only had about $90 in taxable interest for my own income for the year, so not planning on filing a return.  I think it is not a stretch to say that he paid for at least half of his own expenses, especially due to the soc. security income.  I, as his only parent, do not currently work (due to poor health), and I do not think that I have been able to provide half of his support. We didn't know how confusing tax returns would be, and put all refunds in our joint checking account, and then didn't keep good records.  I have had trouble figuring out exact figures for the living expenses!  I will definitely not make the same mistake again!!!   

---So, am I correct to start with, that he is able to file as SINGLE, and check the box saying no one else is claiming him as dependent?

---If so, then comes the nightmare.  I have been trying to figure out for months, since filing his extension,  HOW to report all of this on Turbotax.  I do NOT know what I am doing, even after reading well over 100 posts!  More confused than ever!!!!

---I THINK he is eligible for the AOTC, and without it I am pretty sure he is going to OWE some taxes.  I THINK that WITH the AOTC he may get a refund instead.  That is where I am at.  No idea where to enter figures/how much to enter/how to get the 10% penalty exclusion for the 529. Or how to get AOTC.

---We DID pay $69.00 (i think that was the amount) right before midnight on Oct 16th, and were just about to submit the return, but then Turbotax started asking if we were sure we wanted to leave some of the figures like we has them.  I freaked out, and just never submitted the return.  I think we entered a whole lot of figures that were wrong, and in the wrong places!  He was going to owe $800+ in taxes (I think).  Soooo, now there will be LATE FILING consequences I am sure.

SO NOW I DO NOT KNOW HOW TO PROCEED with getting his return filed the RIGHT way, and hopefully get the education credit.  ANYONE out there have any input on my nightmare?  Would REALLY appreciate some help from the experts!!!! Thanks--- K.H.

[tagteam]

I'll page @Hal_Al (again)

[Ruth C-L]

Hello. My name is Ruth, CPA. 

I will address your questions in the order you presented them:

1. He is able to file as single, and indicate no one else is claiming him as dependent. 

2. For purposes of calculating the AOTC and the taxable portion of the 529 distributions, we cannot provide calculation assistance for your specific circumstance on the forum. For instance, even though the school appears to have reported the tuition and fees after scholarships are applied in Box 1 of the 1098-T, you'd still be able to make adjustments in further screens indicating the amount of tuition and fees before scholarships are applied. 

We recommend reaching out to our team of Tax Experts either through Live Assisted or even Full Service to walk through the specifics.

3. Qualifications to claim the AOTC are the following, the student must:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period^* beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

To be eligible to claim the AOTC or the lifetime learning credit (LLC), the law requires a taxpayer  to have received Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign. Generally, students receive a Form 1098-TPDF Tuition Statement, from their school by January 31. This statement helps you figure your credit. The form will have an amount in box 1 to show the amounts received during the year. But this amount may not be the amount you can claim. See qualified education expenses in Publication 970PDF, Tax Benefits for Education, for more information on what amount to claim.

[Hal_Al · Accepted solution]

Q. So, am I correct to start with, that he is able to file as SINGLE, and check the box saying no one else is claiming him as dependent?

A.  Yes. He apparently provides more than half his own support (scholarships are ignored in the support calculation).

The 1098-T is correct.  The school did (apparently) apply the MPACT payment to tuition (5022- 4302 = 720).  So, enter the 1098-T just as it is.  It doesn't matter that the $4302 was refunded to him.  It only matters that there was that much tuition paid. Because the MPACT was applied to tuition, do not enter the 1099-Q, at all.*  

He is not eligible for the refundable portion of the AOTC, because he is under 19 (or a full time student under 24) and less than half his support came from his earned income.  He is eligible for the non refundable portion, which should be  $720, unless you have some book and computer expenses to also enter. But to get it, you must use a workaround in TurboTax (TT).  When asked how much of the scholarship was used for room and board, enter the full $11,924.  That frees up the $720 net tuition (pus any books, computer) to be used for the AOTC. The $11,924 scholarship becomes taxable income on his tax return. 

Also note that all that taxable income (wages + scholarship) will cause some of his social security to be taxable (see the social security worksheet for details). 

I am not specifically familiar with the Mississippi MPACT  rules, but a cursory review says the money must be used for tuition and cannot be applied to room &board (most 529 plans can be used for R&B).

I roughly calculate that he will owe $542 in federal tax.  Any book or computer expenses you can enter should reduce that dollar for dollar. For example,  $100 in book expenses  increases the AOTC by $100 and reduces the amount owed to $442. 

Q.  So, now there will be LATE FILING consequences?

A. Yes, about $25 if the IRS even bothers to bill you.  The quicker you file, the less likely that is to happen.  But, if you did not make an estimated payment when you filed for an extension, you're already subject to a LATE PAYMENT penalty.  The IRS will bill you; you don't calculate your own penalty. 

More info on penalties at https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/irs-penalty-miss-april-18-filin...

*You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, 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.  Trying to enter the 1099-Q, when it's not needed, just risks the chance of an error, in TurboTax. 

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." 

1. 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 rollovers) on your tax return”.

[Hal_Al · Accepted solution]

I did a quick practice return on my desktop TT (not double checked) and  calculate that he will owe $542 in federal tax.  Any book or computer expenses you can enter should reduce that dollar for dollar. For example,  $100 in book expenses  increases the AOTC by $100 and reduces the amount owed to $442. 

[john clay]

I am so sorry, I just now found these replies to my questions from Friday! I am glad to know that the 1099-Q does NOT have to be entered at all, because I was lost about that situation!  There ARE computer expenses, as well as school supplies (binders at $12 each, geez), other miscellaneous supplies, bookbag, etc. {I thought I read somewhere that internet expense could even be included???} Not sure until I add it all up if those purchases will add up to the $542 in federal tax owed, but every dollar counts! Your help is GREATLY appreciated, as I was almost to the point of tears trying to figure all this stuff out!  Now, hopefully I won't run into any problems when I go and actually enter these figures on the return. Hal_Al, I have read so, so many of your replies to confused filers, and I know you 'know your stuff', so I will do exactly as you have instructed!!! Thanks again-----the Mom

[Hal_Al]

You can count books and a computer ("course materials") bought for school.  You can't count the cost of binders, other miscellaneous supplies, or bookbag).  You can't count existing internet, but you can count new internet service or the incremental cost of an upgrade if needed for attendance. 

[john clay]

Oh for heaven's sake.  Just replied with a long post, and "authentification failed" message popped up, and now my reply is gone.  I will try to remember what I said and start over!

Good morning! John Clay asked me to check on all replies.  He is out of the conversation(s) for the day as he had to go to school. 

**The financial aid office has confirmed this morning that NONE of his scholarships or grants are RESTRICTED.

**Books were already paid for to school, included in the $5022.50 total paid.  No NEW internet.  If binders, etc cannot be considered qualified, then I suppose the necessary lab pants don't count either.  That leaves only the computer to reduce owed taxes. But again, every dollar helps!  However, IF a receipt for said computer is necessary, we are out of luck, because it was purchased (used), paid for with cash.

** I went back and made sure 1099-Q info was removed, since you said to enter nothing about it. But TT is still asking if he RECEIVED a 1099-Q.  Do I answer YES or NO?

**I am still unsure on the 1098-T screen.  I did enter the $719.50 exactly as is in box 1,  as you instructed.  I do not know whether to put the entire $11923.50 from box 5 here or not.  I know you said when I get to a screen where I am asked if scholarship was used for room and board, to enter that scholarship total there.  I have not yet seen that screen.

**I don't know if the following makes any difference in filing, but thought I better mention it to be safe:

For the 1098-T---- ACTUAL expenses paid is $5022.50. Box 1 shows $719.20.  So, the exact "missing amount" is $4303.00.  The fully refunded 429 distribution is $4302.00.  The amount of HELP grant is $4303.00.

**Hopefully none of that matters, and we still don't have to enter the 1099-Q or anything else about the distribution ANYWHERE on his return.  I certainly don't want there to be any audit for my mistake(s), so am giving this info just in case. Just wanted to make sure that $1.00 difference doesn't MEAN something related to entering 529 info. I apologize if I am giving unnecessary info !

[john clay]

oops! Just caught my typo. Sorry. Lower down in the reply that figure i put for the 1098-T is absolutely $719.50---not $719.20.