So my d has full-ride scholarship and also an extra $1,750 for misc expenses like books. She is sophomore/ 20 years old. Does this make a difference in how we file our taxes? I thought I read something last year that said how the taxes are filed different their first year of college (maybe because they live at home until they graduate from high school?) than how it is filed in subsequent years of college.
So, she only spent about $500 on books because she uses online resources. Of note is we paid approx. $5K for summer tuition that was not covered by any scholarship. So, beyond the regular school year tuition & room and board, we had QEE of $5,500. So, if I subtract her scholarship for misc expenses of $1,750, we had QEE of $3,250 that were not covered by scholarship. Would this qualify for American Opportunity Tax Credit?
My husband did the taxes for ourselves and our daughter and they way he did it, TurboTax indicated that my daughter did not qualify for American Opportunity Tax credit. It gave a list of possible reasons, but did not specify which reason applied. I think we need to re-do this because I think we would qualify for the tax credit. Could anyone please give us some pointers on this?
Total up the amount of scholarship money that your daughter received in 2017.
Total up the amount of qualified expenses that your daughter paid in 2017 (tuition, certain mandatory fees, required books and course supplies).
Any excess of scholarship money over qualified expenses is taxable income to your daughter, and it may also bring into play the kiddie tax. If her “full-ride” scholarship covered room and board, it’s a good bet that this is the situation she faces. You (or your daughter, if she can’t be claimed as your tax dependent) can still qualify for at least some of the AOTC, if even more of the scholarship money that would otherwise have covered qualified expenses is instead declared to be taxable. Those dollars are then freed up to use for the AOTC.
If there is no excess of scholarship money over qualified expenses, then none of the scholarship money is taxable, unless you want to declare it as such for the AOTC as described above.
This is a simplistic explanation, as the rules can be complicated and without knowing the exact details of your daughter’s situation it’s hard to be more specific.
This is a fine distinction, but it’s good for four tax years of undergraduate study; that doesn’t necessarily have to be the student’s first four tax years as an undergraduate. The traditional undergraduate progression will cover four academic years over five tax years. And OP’s problem here is that there may not be enough non-tax advantaged qualified expenses paid to still be eligible for the AOTC.
You can only take the money you actually spent on books as part of QEE. If they gave you $1750, and you only used $500, you need to include $1250 as excess, taxable, money.
I just went through this last night with the tax software. If the scholarship/grant is not restricted for tuition and you have other expenses like R&B can be applied with it, you may adjust the amount of the taxable portion to maximize your tax benefit particularly if your kid has little or no income. I spent a couple hours testing different amounts on all the tax returns (Fed and State, mine and my daughter).
To clarify my question, here is some more info. I will round the figures to simplify things. Full value of scholarship is $50,000; tuition is $40,000 and room & Board is $10,000. I think the school may specify that the $10,000 is for room & board (although I am not really sure because some students with same scholarship elect to live off-campus and they get a check from the university for this amount). She has additional scholarship for $1,750- its use is not specified. She had earned income from part-time job of $4,000. She spent $500 on books and we paid $5,000 on summer tuition. So, I think her QEE for this year = $46,750.
I think we claimed her as a dependent her freshman year and qualified for some American Opportunity Tax Credit due to spending more for books and a new computer last year. Would she still qualify as a dependent as a sophomore with her unearned and earned income? Does anyone know what portion of her unearned income we should include on our taxes? I think I read that the taxed portion goes on the student’s tax return?
If it is a full ride, there is probably not much room, if any, to move around for AOTC. So she need to report all non QEE part of scholarship as taxable income.
It is probably saying that she can’t claim AOTC because she is being claimed as your dependent.
It looks like you have $50,000 plus $1,750 in scholarships. So total $51,750
And QEE of tuition $40,000 and summer tuition $5,000 and books $500. So total $45,500
So taxable scholarship is $6,250
Was all of this billed, paid in 2017 and scholarships applied to student account in 2017?
What does her 1098T form say, or didn’t she get one?
If you go through the education interview, if you put that the $6,250 paid for non qualified expenses (room and board), it should make it taxable income and put it on the wages line of her tax form with SCH next to it and the amount. Her work income will be added to that.
Whether you can still claim your D as a dependent depends on if she provided more than 50% of her own support or if you did.
Scholarships don’t count towards support.
So if you paid for all her travel and incidentals, and health insurance etc, then you probably still get to claim her.
How did you do her taxes last year? Didn’t she have taxable scholarships then?
Last year presumably the scholarship was only for half the year (first semester of freshman year). This year its a full year’s worth of scholarship (second semester of freshman year and first semester of sophomore year). May not have hit minimum taxable income amounts the first year.
No, based on the figures you provide, her QEE is $45,500 ($40,000 tuition + $500 books + $5,000 summer tuition).
As mommdc points out, a computer is not normally a qualified expense for the tax credits. It would have to have been required of all students, as mandated by the school or a professor.
It depends on whether or not she is a “qualifying child” under the IRS rules. There are five tests, and the support test is usually the most problematic. Look at the rules and use the worksheet in IRS pub 17 (starts on pg. 26):
She has earned income; she must file her own tax return, and all of her taxable income, earned and unearned, will be reported there. Why would you want to include any of her unearned income on your return, even if you could?
There is a very limited set of circumstances in which a child’s unearned income can be reported on a parent’s tax return. Those circumstances don’t exist here, and when you can do this it’s primarily done for convenience, not because it saves any money in tax owed.
So you should be able to claim AOTC for AQEE of $4,000 on the parent return and claim your D as a dependent, if she didn’t pay more than 50% of her own support.
And then your D would report $10,250 on her tax return as taxable scholarship, and report her work income.
She should be able to use the TurboTax free or zero version that covers 1040 EZ and A. I believe if form 8615 for kiddie tax is required, it will generate 1040 A.
Yes; it’s just another way of declaring as taxable some scholarship dollars that otherwise could have been deemed as paying a qualified expense (in this case, $4,000 of the summer tuition), which would have made those scholarship dollars non-taxable.
You probably should get a tax software. I got one with 5 Federal e-filing included for $10 only. It would be a lot easier to answer the the question in the software and let it populate the numbers and forms that looking up everything by yourself.
Does she have any required supplies that are listed in the course syllabi? Happykid’s costume design class specified the brands of acceptable sewing shears. Yup, we included the cost of those scisssors as QEE.
I was asking about the 1098T because ours lists qualified tuition and fees billed, and not all of the fees we paid to the school are considered to be qualified fees for the purpose of claiming AOTC.
Transportation and health fees were examples of nonqualified fees.
Read Publication 970, especially the part about tax free scholarships and AOTC.
If the student received more scholarship dollars from the school than the school charged in qualified expenses, as reported by OP, than there’s a good chance that the school did not provide a 1098-T.
Our experience is just the opposite, but perhaps the policy was changed in the last couple years. My D’s school did not provide 1098T for her lower classmen years when her scholarships and grant was less. But we got the 1098T in the last 2 years when her scholarships and grant money exceeded her tuition and fee that we actually get refund from school.