<p>QEE is $16,582 (forgot a music fee added later in semester) + $750 books so actually $17332. So -$15,415 aid = $1917. Whee.</p>
<p>I ran it both ways and it looks like the credit difference is worth less to me than the cost to him in taxes (he was already approaching his exemption with his work income). It’s like a $20 difference, so I’ll just leave scholarship “income” and room and board out of the picture altogether.</p>
<p>I am going to carefully write up all these calculations and put them in my tax folder in case I have to justify these numbers later…and to refer to next year.</p>
<p>“I ran it both ways and it looks like the credit difference is worth less to me than the cost to him in taxes (he was already approaching his exemption with his work income.”</p>
<p>I may be way off base, but at first glance this doesn’t seem right…if your son reports $2083 as taxable income ($4000-$1917), the additional tax would be approx a little over $200 (assuming 10% tax bracket).</p>
<p>On the other hand, the AOC is a credit…huge difference. You could take the additional $2083 off your tax due…dollar-for-dollar. So if you paid your son’s additional tax for him, you may still net almost $1900…</p>
<p>Like I said, this is my first reaction…but your numbers don’t seem to add up?</p>
<p>I was going to make the same point that collegeparents did – with the AOC, it is almost always most beneficial (in terms of the total parents + child tax burden) for the parents to shift scholarship/grant money to “taxable scholarship income” for the kiddo so that the parents may claim the maximum AOC.</p>
<p>Using round numbers, for each dollar up to the first $2000, the parents save a full dollar on their taxes (provided they meet the income limits for the credit, of course). After that each dollar of QEE saves the parent 25 cents of tax. Adding a dollar to the child’s taxable income likely only costs the child 10 cents at most -if the child’s income is below the personal exemption amount, NO tax is owed. Each dollar above the personal exemption amount incurs 10 cents worth of tax, until we get to the next bracket of 15%. Most young people will be in the 10% bracket.</p>
<p>SOOOO - each $100 dollars of schol. money shifted to your child’s taxable income will save you $25 (after the first $2000 and until $4000 of QEE to achieve the maximum AOC is reached) but will only cost your son $10 in taxes, at most (or for a kid with a <em>majorly</em> high-paying summer and school year job, $15)</p>
<p>40% of the AOC is directly refundable though, so in almost every case I can think of, it’s still more beneficial to pay tax on the extra included income.</p>
<p>Include the $2083 as income to son = $208 tax owed. Extra refundable portion of the AOC for including it in son’s income and freeing up QEE ($2083 x 0.4) = $833 credit. That means an extra $625 in your pocket.</p>
<p>OP, I cross-posted with you on my last post.
If your tax liability is low enough that you can’t claim the full AOC, figure out how much schol to shift to your son so that you can max out your AOC (bringing the total income tax you pay to $0, I would think)</p>
<p>And that would be minimum benefit to you. Do you really have zero tax liability? Because there are some other credits that are also refundable (additional child tax credit) that can be “dropped down” on the 1040, and make the non-refundable portion of the AOC even more beneficial to you.</p>
<p>Please just make sure you try it that way and consider the net effect. I hate to see people miss out on “free” money on their tax return!</p>
<p>carebear, I think you’re forgetting that the second 2K of AOC expenses only gives you a 25% credit. So the max credit for that 2083 is $83 + $500. $583 x .04 = $233 which is why the OP may be saying it’s a very small difference between that and the taxes her son would have to pay ($208). Whether or not it’s worth the small extra hassle for $25 is a personal choice.</p>
<p>If you can predict now that your son’s final semester of college will have enough qualified expenses for either you or your son to claim the AOC, you can skip it this year if you want to. That topic is discussed in one of the 1098t threads. I’d find UT and post the link but I don’t know how to do that with my I-touch.</p>
<p>We didn’t file the first tax year because Happykid’s qualifying expenses were only about $500 for books.</p>
<p>I wound up putting $2000 in “scholarship/grant applied to R&B” on S’ return because it kept him under the taxable income limit and increased my credit a bit. We both filed today.</p>
<p>I found this process INCREDIBLY confusing and difficult. So much so that I made a few notesheets with all the numbers I used and all the calculations and copies of his college bills and my payment statements and all that just in case of an audit (and according to TT, taking an education credit is something that makes one more likely to be audited). But it’s done and I am 99% sure I did it correctly.</p>
<p>Hi everyone,
I have been reading the threads on CC about the American Opportunity Credit for about a month now. I think I finally understand it but now that I have the tax returns filled out, I am panicking.
What I am wondering is - what kind of paper trail do I need to have?
The only part we paid directly to the school was for summer tuition which was $890.
But I would like to allocate part of the scholarship money toward R&B and our out-of-pocket money toward the tuition.</p>
<p>This is how I figured the tax and credit: (just changed this from the post I left on the parent’s forum - I added in the $890 for tuition that I forgot about)</p>
<p>Cost of Attendance $18336 (doesn’t include the summer tuition we had to pay for!)
Scholarships $14603 ($3570 is earmarked for tuition)
Tuition/Fees $8151
Out-of-pocket $3733 + $890 for summer tuition (we did not take out any loans - my mother, myself & my daughter all contributed to the expenses)
I thought I would allocate $5041 of scholarships toward the tuition/fees. And the remainder of tuition, $3110 tuition would be out-of-pocket.
That means we would pay taxes on $9562.00 on my daughter’s tax return.
Does this sound ok so far?</p>
<p>As Ohiomomof 2 said, Turbo Tax says that taking an education credit makes it more likely to get audited! So I’m not sure what kind of paperwork I am supposed to have that shows I allocated part of the scholarship to R&B and we allocated our out-of-pocket money for the tuition. Am I making any sense? LOL</p>
<p>Should I just forget the AOC and pay the taxes on the scholarships? I don’t want to screw this up! </p>
<p>Any help would be greatly appreciated!
Thanks</p>
<p>Take the credit. As long as nothing on the scholarship info says it is only for tuition, you can allocate it however you like. I don’t think you need a paper trail for that. Just write it all down clearly and file it with your tax papers so that if you are audited, you’ll be able to figure out what you did and be able to explain it.</p>
<p>Did your daughter have to buy any required textbooks or supplies, and if so does she have receipts? If so, you can use that spending toward the AOC (thus paying tax on less of her scholarship).</p>
<p>Confused. People are talking about allocating scholarship money to R&B so they can pay qualifying expenses themselves and take credit (am I reading these post right?). My understanding is that no matter how you allocate, the fact is that any scholarship money used for R&B is taxable. So if your child uses 7k (for ex) for room and board, they have a tax liability for that amount as income.</p>
<p>OP -Did you have to send a check to the school for <em>anything</em> - tuition, required fees, room and board - or was it all covered by her financial aid? Did your D have any loans as part of her FA package?</p>
<p>If she is your dependent, than student loans taken out by her count as amounts paid by you for purposes of the AOC.</p>
<p>If she had no loans, and the only thing you paid for was personal expenses, books and the summer tuition, then the ONLY expenses you can claim toward the AOC are books (required books/materials/supplies) and the summer tuition.</p>
<p>If $7k of scholarships/grants is ‘naturally’ taxable, i.e. exceeds QEE, a parent can choose to have the student make an additional $4k taxable by applying it to R&B and use that $4k as expenses for the AOC. The student would report $11k as income insted of $7k but generally pay less in taxes than the $2.5k credit is worth to the parents.</p>
Yes, the $7,000 would be taxable income. But, a tax credit is a $ for $ reduction of taxes and a $2500 credit will far exceed any tax on $4000 of income. </p>
<p>For instance, if the students marginal tax rate is 10%, $4000 of additional income would generate $400 in taxes. $4000 of qualified education expenses used to claim the AOC would generate up to a $2500 tax credit. (100% of the first $2000 and 25% of the remaining $2000). Of this $2500, $1,000 is a refundable credit (meaning even if the taxpayer has no tax liability, they can get $1,000 refunded as if they had paid that in taxes). </p>
<p>My daughter’s tax bill was always a little higher by electing to make some of her scholarship money taxable, but the overall tax savings between her and us was worth it and we just paid her taxes for her.</p>