Does my Kid need to file separately? 1098T and 1099Q received

[jaycha2]

My 18 year old kid, has No income. Received 1099T (Has bright future scholarship). Used it for paying Tuition directly. Also we took Qualified distribution from 529 savings plan for boarding and computer equipment(1099-Q received, with me as being recipient).

1098T has box 1 - 2500 (payment received for qualified tuition and related expense

Box 5 has 2500 (Scholarship or grants).

Not sure whether any part of scholarship is taxable or not. Any help will be appreciated

[AmyC]

It depends. Let's work through it all.

Start with the 1099-Q - If all of it went to 529 qualified Room and Board and Qualified Education Expenses - Internal Revenue Service , tuck it away and do not enter it into the program. The IRS says to only enter taxable forms.

1098-T options:

Determine if you qualify for AOTC.  What You Need to Know about AOTC and LLC states: You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers). Ask yourself in you qualify.

1. If yes, you can take the credit 4 times and $4,000 of expenses get you the most credit- up to $2500 off your tax liability. Is it worth claiming this year?
   • If yes, claim the 1098-T. Claim all of the scholarship income was used for other expenses, not tuition. This becomes passive income to the student. See What is the Kiddie Tax?
2. If no, the 1098-T scholarship wipes out the tuition, no credit, no income. Tuck the form away.

If there is taxable income from the Q,  it needs to be entered or shifted to tuition and let the scholarship be income. Shifting the income around is allowed. Take the quick quiz, Filing requirement - Do I need to file a tax return? for your student. The kiddie tax on your return may be all that is needed, if at all.

[Bsch4477]

You can manipulate the information on the 1098-T so that your son gets $$2,500 of income but you get $2,500 of expenses for education credit which would outweigh his tax liability. 

Remember that the 1098-T is an informational form so you can 

a report values that differ from those that you see on the form. In the student’s return in the 1098-T form in the program enter $2,500 in Box 1 which represents total qualified education expenses. In Box 5 enter $5,000 which accounts for the increase in the student’s taxable scholarship amount. Look on line 8 of her 1040 and you should see the 2500 of taxable income.  Be sure that you checked the box on his. return saying that someone else will claim him. 

Now on your return in the education credit section just enter 2500 as expenses. You don’t have to do anything else and you should see your credit. Note that on his return there will be Kiddie tax which needs information from your return to complete.