So you pay tuition, lodging, boarding, books etc … can you take tax deduction for this?
If you have received merit scholarship/grants, do you have to pay taxes on this?
Does the student have to file tax return in order to receive deductions? or if the Parent is paying for tuition etc, they can take deductions etc. Can someone summarize the tax treatment after a student starts going to college.
A summary of tax treatment after a student starts going to college would be extensive. There’s just too much there, even in summary form. Read IRS pub. 970, which covers the deductions and credits available to college students and their parents.
http://www.irs.gov/pub/irs-pdf/p970.pdf
Be aware that the IRS has not yet made available on their web site the 2014 version of pub. 970, so until that happens we will have make do with the 2013 edition.
Sigh. Money you get for room and board from fin aid and scholarships go into the category of taxable income if the amounts are enough to actually be taxed, so NO, no deductions for those.
If you look at the Pub 970, it will give you what he rules are for college costs and awards, as Middkid86 has said. Basically, there is a list of what the allowable expenses are to offset any awards (tuition, fees, books, nec supplies for class). There is the tax credit which can come into play if you have paid certain expenses. It’s not all that simple and one often has to see whether it is more beneficial for parent or child to take the credits and deductions.
Consult a tax professional.
Here’s a recent thread with the same questions. You can adapt the details of the responses to your situation.
If I add Outside scholarship, University Grant, federal work study ( did not take any loans) that’s total of $25K and my tuition itself is $30K… So it seems My parents or I won’t owe any taxes on Scholarship/grants, but we will be still eligible for AOC. Is this correct?
^Not quite. The following statements are correct:
If you add Outside scholarship, University Grant that’s total of $25K and my tuition itself is $30K… So it seems you won’t owe any taxes on Scholarship/grants (25k < 30k), but your parents may still eligible for AOC (30k - 25k = 5k.)
Federal work study is not scholarship and you always receive a W-2!
Thanks 4kidsdad
My income is only from Work study and that too it is less than $700. Do I have to file return or I can include that income with my parents?
You mentioned parents will be eligible for 5K AOC, I believe the maximum tax credit you can have per student per year is $2500. Correct?
Child’s earned income cannot be included on a parent’s tax return.
4kidsdad meant they have $5k of qualified expenses for the AOC. Yes, max credit is $2500 based on $4k of expenses.
You need to check Pub 501 for who has to file a return. Look at page 3 regarding dependents and the table on the next page. If your only income is $700 from work you don’t need to file a return and it’s unlikely you had any withholding to get back.
http://www.irs.gov/pub/irs-pdf/p501.pdf
As Madison85 said, only investment income can ever be reported on a parent’s return.
Don’t see how the IRS is able to make a distinction between need-based grants and merit-based grants, since the schools themselves blur the distinction.
^IRS does not care if they are need-based or merit-based scholarships/grants. IRS only cases if they are tax-free or taxable scholarships/grants. Depending on the amount of the taxable scholarships/grants, you may be require to file tax returns.
You could get free help to file your tax returns See http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers
Generally grants are need-based and scholarships merit based. But there is no distinction by the IRS, both are taxable if the total exceeds QEE.
For tax credit on qualified expenses. How does it work? you can only take credit for tuition paid till end of Dec 31. In most cases, 2nd semester tuition are paid in January of this year. That means for the tax year 2014, you can only take credit for the 1st semester tuition assuming you are freshman.
Unless you planned ahead and paid some of Spring 2015 tuition by December 31 2014 if needing to max out QEE ($4000) for the AOTC.
For 2014, you can use expenses paid in 2014 for an academic period that begins in 2014, and you can also use expenses paid in 2014 for an academic period that begins in the first three months of 2015.
I paid half of tuition in Aug 2014 and other half in Jan 2015. Can I still take take full credit on 2014 tax return?
No, you need $4,000 in QEE to get the max $2,500 credit. The credit is dollar-for-dollar for the first $2,000 in QEE, and then $1 in credit for each $4 in QEE for the next $2,000.
I received my 1098-T, it shows the tuition, scholarship and grants for the school year. Even if we paid half of tuition in Jan 2015 and half in Aug 2014. So can you claim the entire amount towards 2014 return? or you can only claim what’s paid in calender/tax year?
The 1098T most likely has an amount in box 2. That’s what the school billed in 2014. If you didn’t pay spring 2015 tutition and fees until January 2015, you can’t use those expenses for the 2014 AOTC. They would be for the 2015 AOTC.