Need help claiming son with high grant amount- not sure acct gave correct advice!

Paying for College
1

<p>Hello. We filed our taxes a couple of days ago and at that time the accountant told us one thing, we filed, and then we got a call yesterday with conflicting advice. This is what we have going on that I am trying to quickly get answers for.</p>

<p>I am divorced from my son's father and remarried. My husband and I usually claim him on our taxes. My son has no income of his own. He is a full-time student. He received grants in excess of eligible tuition and fees by $9570. He will have books to claim but I'm not sure how much. </p>

<p>The accountant told us we have to claim him as our dependent, that he cannot claim himself because he has no income, even though he had that $9570 excess. They entered the grant total and tuition in our return and told us everything was finished and fine and we e-filed. Later the next day we got a phone call telling me that my return has not changed, all the amounts were still the same, but that my son had to file separately claiming the $9570. They said he could claim book costs if he had them and that without them the most he would have to pay is $430. Apparently they made some calls to ask some questions about our return and found out things could not be filed the way they told us it was supposed to be done. I picked up my paperwork tonight and my son is no longer entered on the education worksheet. I called the office to ask why that was and the accountant who prepared our return had no idea he was no longer on there. I no longer trust any of what they are telling me. The deadline is approaching and we need to know what he needs to do. The reason we took it to a tax office to be prepared was to have them deal with this situation properly and apparently they didn't know what they were talking about. </p>

<p>How does he do this? What form does he use? Where does he enter his 1098 information and his book deductions? What kind of education credit does he get to claim if any? </p>

<p>I am very frustrated by this. I have no idea how to handle this and this is why I paid the professionals hundreds of dollars. I can't imagine paying them hundreds more to do his taxes now also. Can anyone give me any information? I appreciate any help I can get!</p>

2

<p>Is this an actual accountant? Did they initially tell you to report the income on your taxes? If so, that is quite shocking.</p>

<p>You can claim your son as a dependent and get the dependent exemption of $3650. He should file his own tax return. He will get the standard deduction of $5700. He should report any taxable scholarship on his tax return. You should not report any of his taxable scholarships on your return. They are his income, not yours.</p>

<p>When you claim a dependent only you can claim the education tax credit for that dependent. Any qualified education expenses paid by him are treated as paid by you for the purpose of claiming the credit.</p>

3

<p>Thank you so much for the reply! He and I are pedaling as fast as we can to get this figured out and I am feeling so stressed out because of it.</p>

<p>Yes, it is an actual tax firm. I’m so frustrated that they have confused the issues on what seems like it should be an obvious form for them to fill out! </p>

<p>This is what I understand from your post (and what I don’t, sigh).
I claim him as usual and get the dependent exemption of $3650. Got it.</p>

<p>He files his own return. Got it.</p>

<p>He gets a standard deduction of $5700. Where does this show up on the form? For that matter, which form does he fill out? My head is spinning right now and I can’t even think of the obvious.</p>

<p>He should report any taxable scholarship on his tax return. Where does he do this? Does he need to use the 8863 or any other form?</p>

<p>When you claim a dependent only you can claim the education tax credit for that dependent. Any qualified expensed paid by him are treated as paid by you for the purpose of claiming the credit. But the qualified expenses were the tuition and fees and books and were covered (as well and the room and board) by the grants. So should I or should I not have anything filed for him so far as education tax credit goes on my return…because I don’t, presumably because there was a 9570 surplus?</p>

<p>Oh thank you swimcatsmom for any help you can give me!</p>

4

<p>Well, hmm, probably not an actual accountant but someone who works for a tax service?</p>

<p>Not only did they file our return with his information on the education page originally, but it was done by the person handling our return with a more senior person standing there verifying everything. When I got the papers tonight and looked them over I called the office and asked the person who did our return what was going on they had no idea that his information was no longer there. I really felt like I was in trouble then.</p>

5

<p>Ok, lol, I’m more calm and have gained a handle on this a little. I get the standard deduction for him. But still not sure of the right form to use and pretty sure I have nothing I can claim in education tax credit on my return. Is that right?</p>

6

<p>First of all, you don’t have to worry about the tax deadline because you have already e-filed, on time. What you would have to do for any changes is file an amended return, and there is no deadline for that (or at least not one coming up soon). </p>

<p>I used to have my taxes done by a CPA, and the main reason I was willing to pay the CPA $$$ to file return was so that HE was the one who dealt with all the problems, including fixing his own mistakes, if any. </p>

<p>It seems to me that any reputable firm, having prepared your return in a way they now believe to be inappropriate, would take responsibility for preparing the return correctly, including preparing and filing an amended return, without additional charge to you. It was their mistake, not yours – so therefore it becomes their responsibility to fix it.</p>

<p>Three days before the filing deadline is probably NOT the best time to talk to them about this, though. Ask them to file an extension request for your son (it’s ok if that gets filed on Monday instead of Friday, as Friday April 15th is a federal holiday for a weird convoluted reason) – and then next week ask to talk to someone who is a supervisor at the office to get it all straightened out.</p>

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<p>Sorry that I don’t have time to give a real detailed response on this, but if you are married filing jointly and you claim your son as your dependent, you CAN claim the AOCredit (provided you meet the income requirements), at <em>least</em> on the amount that was paid for all required books, supplies and equipment, and possibly on the amount of room and board that you paid for (including paid for by a LOAN - in the student’s financial aid package or otherwise) - up to a total of $4000 paid in order to get the max $2500 credit (but even a smaller credit is helpful!). There are other threads here that explain how to do this - here are some: <a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1076108-american-opportunity-tax-credit-scholarships-2.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1076108-american-opportunity-tax-credit-scholarships-2.html&lt;/a&gt; (see swimscatmom’s post especially, also note my comment that tax preparers are often CLUELESS about this stuff!)</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/870818-fafsa-continuing-student-question-taxability-scholarships-tax.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/870818-fafsa-continuing-student-question-taxability-scholarships-tax.html&lt;/a&gt; (see swimscatmom’s post #8 for a helpful link that discusses how to minimize the total family tax bill -parent benefits from maximizing the AOC even if the kid pays a little extra tax)</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1093982-fafsa-tax-question-college-scholarships-taxable-student-parent.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1093982-fafsa-tax-question-college-scholarships-taxable-student-parent.html&lt;/a&gt;&lt;/p&gt;

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1084458-byrd-scholarship-designation-question.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1084458-byrd-scholarship-designation-question.html&lt;/a&gt; (see especially post #5)</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1097756-american-opportunity-credit.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1097756-american-opportunity-credit.html&lt;/a&gt;&lt;/p&gt;

<p>MORE CC threads on this topic:
[site:talk.collegeconfidential.com</a> “college confidential” taxable scholarship grant “american opportunity” credit - Google Search](<a href=“site:talk.collegeconfidential.com "college confidential" taxable scholarship grant "american opportunity" credit - Google Search”>site:talk.collegeconfidential.com "college confidential" taxable scholarship grant "american opportunity" credit - Google Search)</p>

<p>I would also check to make sure that the 1098T -is correct - check it versus the details of your kid’s financial aid award package plus your invoices and the records of what you paid and when - and DON’T forget books/supplies/equipment. The 1098T is often incorrect, sadly.</p>

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<p>Thank you. We have checked the numbers and the 1098 is correct. Books were paid for out of pocket, room and board were paid for with the grant. The originally put the tuition/grant numbers into our return, but they were pulled out after we left because they said he needs to be the one claiming it which apparently is correct. Just not sure how I could claim any AOC for anything but the books since the grant paid for everything else. </p>

<p>Thank you for the links. At least we’ll be well prepared for next year!</p>

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<p>Specific numbers are as follows</p>

<p>45680 in grants
36110 for tuition and fees
9570 went to his room and board
Books paid for out of pocket</p>

<p>I read through the first two links and it looks like we don’t have anything other than books that we could claim for AOC as that is the cost incurred over the amount of the grants? He claims the 9570 minus book costs?</p>

<p>Can he find forms online and/or e-file this?<br>
Where would he note a reduction in taxable income because of books? The 9570 difference in grant and tuition found on his 1098 will not be the number he will be claiming.
What’s the appropriate form for him to use to file?</p>

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<p>I appreciate all the help you are giving, thank you!!</p>

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<p>I suspect many high end accountants just dont really deal with this. I suspect many of their clients do not qualify for either AOC or need based aid.</p>

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<p>He can file the 1040EZ. The scholarship amount is included with any other earned income on line 1 . D filed a paper copy because you need to write on the return SCH followed by the taxable amount of the scholarship on the line to the left of where you put the normal line 1 number. Just go to the IRS website and print the 1040EZ form and instructions.</p>

<p>You can take the education credit for his books or as you indicated subtract the cost of the books from the $9570 to obtain the amount of taxable scholarship he has to claim. This would mean you would have to file an amended return but you would get more in a tax refund than the extra he would pay if he doesn’t subtract the cost of the books. It’s ok for the 1098 numbers not to match up; just document how you arrive at the numbers you use.</p>

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<p>You did not give the amount for books, but let’s say for example purposes it is $700.</p>

<p>Let’s also assume that the combined income for you and your husband is less than $160,000, meaning you are fully eligible for the American Opportunity Credit, and also assume that you had enough tax liability to make you fully eligible for the AOC - for both the refundable and non-refundable portions.</p>

<p>Does the $9570 cover ALL of his room and board costs? I’ll assume yes.</p>

<p>Refer to IRS Pub. 970 - <a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt; I’ll use their terminology.
Page 3-7 discuss taxable scholarships/grants, page 8-19 the AOC… </p>

<p>His qualified education expenses - QEE (tuition, fees, required books) = $36110 + 700 (my “example” book amt) = $36810</p>

<p>Since you would benefit more by taking the AOC for the book amount rather than your son deducting it to reduce the taxable part of the scholarship, we’ll “count” the books as being paid for out-of-pocket and figure that the scholarship went for the other $36110 of QEE. So 45680 - 36110 or $9570 get listed as scholarship income (marked “SCH” as hoosiermom noted) on HIS 1040EZ. </p>

<p>On YOUR married-filing-jointly return, you claim the book amount ($700 in the example) as the American Opportunity Credit, since we’re counting it as NOT being paid for by the scholarship, but out-of-pocket. Fill out Form 8863, and put the $700 (or whatever) on the appropriate line of 1040 as directed on form 8863 and its instructions. (in your case, this will be a different situation, since your “helpful and oh-so-knowledgeable” tax preparer will now need to file an amended return.)</p>

<p>Your son’s tax is due NOW (April 18), even if you were to file an extension. Just do the 1040- EZ - very simple. “SCH” to indicate the taxable portion of the scholarship, plus include any income he had from a summer job, work-study, etc. Should take just a few minutes - don’t pay to have it done!</p>

<p>About your tax preparer, you said “They entered the grant total and tuition in our return” - make sure that this is corrected in the amended return so that YOU are not paying any tax on the $9570! – everything that swimscatmom said in her post #2 is correct.</p>

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<p>OP, we were in a similar situation. We declared D a dependent. D had about 4K over qualified expenses that was put on her tax return. In addition, we added 4 K of of scholarship income (it did not specify if had to be used for tuition) to her tax return for a total of abut 8K. That way, 4k of the money we contributed could be applied to tax credits.</p>

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<p>We also assigned a portion of my D’s scholarships/grants in excess of tuition/fees/books to her income. It totaled close to $8000. After the $5700 deduction, the taxes weren’t too bad. The killer taxes were our state taxes!! Don’t forget that you very well may need to pay state taxes, depending on your individual state laws. Our state’s standard deduction is quite a bit less than $5700, so her taxable income was higher for state taxes. In the end, though, we still saved more on our taxes than we paid for her taxes. That made it worthwhile.</p>

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<p>Thanks so much for all your help! I did check into the state taxes and he doesn’t have to file. That’s one less thing, anyway! We’re getting ours amended. I’m curious about how much the book money will change our return!</p>

<p>Next year I will have more college costs for myself (only about 800 after the one scholarship I got) and will have to figure out the best way to claim it. I’m pretty sure I’m not paying anyone to do them next time! Not when I have to figure the right way out for myself!</p>