Kiddie tax and taxable scholarships

[Bookis]

@Twoin18;d-2142905

I was very surprised to read this article in the Wall St Journal which appears to have misunderstood the implications of kiddie tax on scholarships (https://www.wsj.com/articles/the-surprising-tax-bill-for-sons-and-daughters-of-gold-star-families-11557480602). Local bookkeeping services http://yourbooksontime.com/bookkeeping-services from company Your Books On Time. Though most of the article is about survivor benefits for minors (which may well be a concern) the statements about college scholarships tend to mislead, because in reality you still get the $12K personal deduction on taxable scholarships. So any hit will usually be quite small when room and board costs are typically not much over $12K. Even more alarming, the recommendation appears to be to simply not report this income and rely on the IRS not “enforcing” these rules:

“The Kiddie Tax revision also threatens college students from lower-income families who receive financial aid for expenses other than tuition and supplies. By law such income is taxable, says Tim Steffen, a tax specialist with Robert W. Baird & Co.
If a family is in a low tax bracket, then a child receiving taxable aid could wind up in a much higher bracket—with no money to pay the tax. Mark Kantrowitz, the publisher of Savingforcollege.com, estimates that more than three million students could be affected.
The Kiddie Tax revision isn’t yet a disaster for some of these students for two reasons. Colleges aren’t currently required to report taxable aid to the Internal Revenue Service, and many don’t. Also, the IRS doesn’t seem to be enforcing the law in this area, tax specialists say.
Still, the law is on the books. Financial-aid providers are alarmed and are pushing to make scholarships tax-free.
Robert Ballard heads Scholarship America, a nonprofit that distributed $264 million to 104,000 students last year. He says, ‘College scholarships are to help students get higher education, but the 2017 Kiddie Tax change is pulling in the opposite direction.’”

yes, this is a big system problem