Scholarships not listed on 1098-T

[anonymouse1]

Thanks - I guess worst case, I wait until January to pay, then find these scholarships are listed in Box 5 but only the fall tuition is listed in Box 1.  Then I'll just put the difference (scholarships applied to fall were more) in TT, and then on the 2023 1098-T they would list spring and fall tuition but no outside scholarships, I'll put those last two in when I do the taxes.  None of them should be taxable, since they were less than the expenses they were applied to (fall about 55% of the total scholarships, and spring 45%).  It would be better for us to claim in the spring so it matches up with what I *think* the 1098-Ts will be (the usual way, fall freshman tuition on the first one, and spring freshman/fall sophomore on the second).  We should have no problem meeting $4000 in QHEE just from the fall 2023, don't need the spring for either year, but just in case she drops out over the summer or something unforeseen happens, then we could use the spring tuition to qualify for AOTC next year if we had to.

[anonymouse1]

Sorry, another question and I can't see how to start a new thread.  Someone just posted this to a Facebook group about paying for college.  Is it true that you don't have to deduct loan proceeds from QHEE for 529 withdrawals?  I know loan proceeds (I'm assuming not the origination fee, since that wasn't paid to the university and probably won't be on the 1098-T) count as student's/parents' payment for AOTC, but it just seems strange that if say tuition was $10k, scholarship $6k for freshman fall semester and loan proceeds paid to university $1732 plus let's say room and board was $5k, that $10k-$6k=4K is applied to AOTC, that includes the loan, and then the entire $5k of room and board would qualify for 529, and that years later the student would still be allowed to pull $1750 (entire loan including origination fee) from the 529 to pay back the (subsidized) loan?  https://www.savingforcollege.com/article/what-is-the-best-way-to-use-529-plan-funds

[Hal_Al]

Q. Is it true that you don't have to deduct loan proceeds from QHEE for 529 withdrawals? 

A. Yes. As you said, loan proceeds  count as student's (or parent, if they co-signed) payment for AOTC.

Q. Will a  student  still be allowed to pull money from the 529 to pay back the (subsidized) loan, when the loan never actually paid for any QHEE (or the QHEE was used to claim the AOTC)?

A.  Yes.  It's a loop hole that essentially allows that double dipping.  That may be why there's a $10K cap on that provision.  You cannot, however, claim the (up to) $2500 student loan interest deduction, if you used 529 funds. 

Q. I know loan proceeds  count as student's/parents' payment for AOTC?

A. Correct.  Nothing about loans will be on the 1098-T. 

[anonymouse1]

The $2500 student loan payment deduction is for student loan interest (including the origination fee) so if we pay it off within 6 months of graduation, the only interest is the $18 (for this semester) origination fee, so I'm not worried about (us or her) deducting the interest.  So if she got $1750 loan this semester, and $18 was origination fee, $1732 paid to the university, I figured $1732 was applied to QHEE for AOTC.  Let's change my example to $11k tuition&fees - $6k scholarship - $4k applied to AOTC ($1732 of which was from loan) leaves $1000 from tuition and fees, $5k room and board and let's say $250 for books, I would therefore be able to claim all the room, board and books as well as the tuition and fees over the $4k applied to the AOTC, equaling $6250 as a qualified distribution from the 529?  When I had been only counting on $4218.  So I can take another $1732 from the 529 this year tax-free?

[Hal_Al]

Q. So I can take another $1732 from the 529 this year tax-free?

A.  Yes. 

[anonymouse1]

Thank you!  Going to see if that's possible tomorrow - I told hubby that even if it didn't hit our bank account by COB Friday, as long as it was requested from 529 and processed on their end it should be OK?

[Hal_Al]

Q.  As long as it was requested from 529 and processed on their end it should be OK?

A. Probably.  I would do it. See https://ttlc.intuit.com/community/college-education/discussion/i-took-a-529-distribution-in-2021-for...

[anonymouse1]

Thank you.  One more question - which Turbotax product should I buy (I've only done online once, I prefer to buy the CD) to have access to the education credits, also I did a Roth conversion this year.  My husband changed jobs a few months ago, so he has 2 W-2s and most likely had too much FICA tax withheld (he changed jobs last year too and that's what happened).  I don't think he has any stock options from an employer or anything like that, we don't have a brokerage account outside of IRAs.  We also haven't itemized since the TCJA tax changes limited state/property tax deductions (we used to pay 3 payments one year and one the next, so we could itemize every other year), and while I did donate to some charities at the beginning of 2022, I understand that there is no longer an "above the line" deduction like there was the past 2 years.

[Hal_Al]

Any version of the CD/download (''desktop") TurboTax (TT) will work.  I get Deluxe because it comes with one free state.  

Upgrades are only required in the online editions of TT.  TT will try to sell you  upgrades, in the desktop software, but they are not necessary. Desktop upgrades promise "more help"  with some situations. Nothing you described needs extra help, in my opinion. 

[anonymouse1]

Thanks, I wasn't sure with the AOTC and the Roth conversion.  I don't need the state - I only look at Turbotax state for a sanity check, but my state has free filing directly on their website so I enter all the numbers there.

[Hal_Al]

With no state to do, you can use TT Basic (desktop).

Be aware that the Roth conversion is added to your income, and will raise your MAGI for purposes of the AOTC income limit.

[anonymouse1]

Not a problem, even with the Roth conversion we're under the $160k for MFJ to get the full AOTC. Any idea whether that will be indexed for inflation (seeing how Social Security and tax brackets, 401k and IRA contributions just got a big boost due to inflation)? Not a problem for 2023 either, but with the new requirement for catchup contributions to be put into a Roth 401k, with possibility of raises/bonuses, 2024 and later could put us in the position where we would not be able to convert much before tax rates go up in 2026, so we'd be choosing between claiming the AOTC or converting traditional IRA money to Roth in 2024 and 2025.

[Hal_Al]

Since it's been the same for several years, I assume there's currently no provision in the law for inflation adjustments. 

[anonymouse1]

I just got my copy of TT, and started roughing in the numbers though I don't have W-2s or 1098-T, 1099-Qs yet.  I put in what we paid for tuition and fees for fall in the 1098-T, and also the scholarships processed by the university that I believe will be on the form.  I just roughly figured earnings on the distributions that we took from two different 529 plans, $100 on one and $112 on the other.  Right now TT is counting that $212 as Other Income - but there is no place to put what we spent on room, board and books (I did put $4000 on Form 8863 for the AOTC).  Where do I enter the expenses that were qualified for 529 but not for AOTC?

[Hal_Al]

After entering the 1098-T, In the education expenses section, you will get a single box to enter one number for total room and board (R&B)  paid. To get the screen to enter Room & Board, answer yes when asked if you have book expenses.

Enter the 1099-Q for the 529 plan distribution before entering educational expenses, including R&B (TT will not give you the R&B entry box unless you need it for a 529 or ESA distribution).