No Hope or LL tax credit??

[aron]

<p>My sweet husband fired up TurboTax and finished our taxes today (not yet filed). Because boxes 2 & 5 were nearly equal on the 1098T, and after reading the 970, he and TurboTax decided to apply our monthly payments to room and board.</p>

<p>This meant no Hope credit or LL credit...but simplified life in his estimation. We do not get a credit, but D does not have to pay taxes on grants and scholarships, etc. D is a dependent who worked a summer job, work study and winter break but did not hit her income cap.</p>

<p>Obviously this is the first year for us. Your advice is greatly appreciated. While I did search, I did not come across exactly this situation discussed previously.</p>

<p>Perhaps we should be doing our own calculations as swimcatsmom does?</p>

[TerpDad]

<p>In same boat, D’s 1098T showed an overage of $2000 in scholarship $ . Fortunately, it did not exceed exceed her standard deduction while added to her last year’s total income.</p>

[swimcatsmom]

<p>

Perhaps we should be doing our own calculations as swimcatsmom does?

I think you should - but then I would. ;)</p>

<p>I spent hours reading through IRS 970 so hopefully I am doing it right. There is a link to a lengthy article from a CPA journal here </p>

<p>[Navigating</a> the Form 1098-T Tuition Statement: Inconsistencies in Reporting](<a href=“Find Your Page | The New York State Society of CPAs”>Find Your Page | The New York State Society of CPAs)</p>

<p>It is awfully long (and from 2005 so some numbers are out of date but the principals apply) but has some useful information.

In certain situations it may be beneficial to include otherwise excludible scholarships as income. Taxpayers may elect to report nontaxable amounts of certain scholarships as income when they would otherwise not qualify for education credits.

</p>

<p>

Another issue that Form 1098-T does not help relates to the designated use of a scholarship or grant. The regulations require scholarships and grants that are specifically designated for tuition to be offset first by tuition, then by required books, supplies, and equipment, when determining the taxable amount. Form 1098-T does not require schools to indicate whether a scholarship has a specific designation. Preparers must obtain this information from taxpayers. Under certain circumstances, particularly when the scholarship is not designated to be used for tuition, it is better to have parents claim a student as a dependent, report scholarship income on the student’s return, and use the amount of scholarship that was taxable as a basis for an education credit on the parents’ return. Two worksheets can help isolate the amounts to be shown on the student’s and the parents’ 1040s. Usually when there is scholarship income the family will save tax if the income is reported on the student’s return and the student is claimed as a dependent on the parents’ return. This often results in an education credit on the parents’ return that is greater than the amount of tax paid by the student.</p>

<p>Example. A Form 1098-T for 2005 shows $2,000 of qualified tuition and related expenses in Box 2 and $7,300 of scholarships and grants in Box 4. None of the scholarships and grants is designated for tuition only. In addition, the student has receipts for $300 of required books, supplies, and equipment, and may be claimed as a dependent on his parents’ return. Exhibit 3 shows the completed worksheet.</p>

<p>In option 1, the student reports $5,000 as taxable scholarship income. If the student is single and has no other income, he pays no tax, because the income is less than the standard deduction ($5,000). The parent who claims the student as a dependent does not get an education credit or deduction, because none of the scholarship income is taxable.</p>

<p>A second option results in a net family tax savings. The student could deduct less than the full amount of qualified expenses and pay some tax on the scholarship. The taxable amount of scholarship would then be available for the parents to claim as a deduction for tuition and fees or for an education credit. For example, the student could deduct only $1,500, rather than $2,000, of qualified tuition and expenses on his tax return. This would leave $5,500 of taxable scholarship income on the student’s tax return and $500 of taxable income after deducting the standard deduction. The student would pay tax of about $50. The parent claiming the student as a dependent would use $500 as qualified tuition and related expenses and receive either a Hope Credit of $500, a Lifetime Learning Credit of $100, or an education deduction of $500.

</p>

<p>It is worth reading through the article and IRS 970.</p>

[happymomof1]

<p>Thanks for the link swimcatsmom!!</p>

[aron]

<p>swimcatsmom-
Thanks for the links, we had read the CPA article but were a little concerned about the date. I’ll go back and review the exhibits more carefully to see what’s best.</p>

[father05]

<p>scm,</p>

<p>If the amount of the scholarship or grant claimed by the student kept them under the standard deduction for federal income tax purposes but over the FAFSA exclusion, is that counted as available income towards EFC for the student or is it protected? </p>

<p>Also, how has it impacted the state taxes for the student?</p>

[aron]

<p>This was our concern, that the student’s “income” not impact EFC.</p>

[swimcatsmom]

<p>No it is not counted as available income. If you do a tax return and scholarships/grants or WS are included in the AGI there are 2 questions on the FAFSA that ask about scholarships/grants/WS included in the AGI. These are used to deduct those items out of the AGI before the EFC is calculated.</p>

[aron]

<p>Thanks, back to the computer we go!</p>

[Lunar_eclipse]

<p>scm,</p>

<p>Does the same hold true for the CSS Profile?</p>

[swimcatsmom]

<p>I don’t know. The FAFSA efc formula is available for anyone to look at. As far as I know college board does not make the css/profile formula public.</p>

[_rentof2]

<p>The CSS Profile asks what the student’s AGI is, and then in a separate question they ask that you enter any earnings (included in that AGI) that come from workstudy, grants, scholarships, fellowships, assistantships. They don’t tell you what they do with that information. I assume they just transmit it to the college and the college considers it according to their own aid policies. I assume my son’s school subtracts that amount from his AGI in determining his actual income.</p>