<p>For the 2013-2014 school year, my son received institutional/need based grants of about $9000 and also has loans of about $9000. Of the total amount, about $6900 would be qualified educational expenses. He is a full-time student with zero income...he is claimed as our dependent.</p>
<p>Can we claim the American Opportunity Credit?</p>
<p>Do we need to include the grants on our tax returns?</p>
<p>Not likely. Your scholarships or grants exceed your qualified educational expenses; in fact, your son may have taxable scholarship income. See Pub 970, <a href=“http://www.irs.gov/publications/p970/ch02.html”>http://www.irs.gov/publications/p970/ch02.html</a>
& <a href=“http://www.irs.gov/publications/p970/ch01.html”>http://www.irs.gov/publications/p970/ch01.html</a> </p>
<p>From the numbers you gave, your son has $2100 of taxable scholarship/grant income. For this purpose this is considered earned income and you can’t report it on your return. With no other income he is, however, below the threshold for having to file a return. And from those numbers you have no QEE for the AOC.</p>
<p>However, what expenses were the loans used to pay? If R&B, then you could have him declare more than $2100 as taxable and use that additional amount as expenses for the AOC provided the terms of the scholarships/grants don’t require they be used for tuition and fees. If you have him declare $4000 extra as income for you to take the maximum AOC he would be right at the threshold of having to file a return.</p>
<p>From IRS Pub 970 chapter 2:</p>
<p>Example 2. The facts are the same as in Example 1,
except that Joan reports her entire scholarship as income
on her tax return. Because Joan reported the entire
$2,000 scholarship in her income, she does not need to
reduce her qualified education expenses. Joan is treated
as having paid $3,000 in qualified education expenses.</p>
<p>The example is from page 13. Read the verbiage preceding the example and example 1 to get a fuller understanding.</p>
<p>You mentioned the 2013-14 school year but for 2013 taxes you can only use expenses actually paid for in 2013.</p>
<p>Thank you both for the reply. </p>
<p>If we were to add the grants to our tax return, could we take the credit? This may be a stupid question to some but I’m thinking the credit is an actual reduction in the taxes owed whereas the taxes on the grants would be less than $2500. Or would this complicate things by making my son have to file a return of his own?</p>
<p>I have the same questions.</p>
<p>On what line is the taxable scholarship reported if you elect to declare part of the scholarship as taxable?</p>
<p>If the total income is below the reporting requirement then should the student file an return? My thinking is that it would leave a paper trial that would be helpful if you were audited. In my case, the chances of an audit would be close to zero.</p>
<p>For the OP, I would calculate the taxes both way. I suspect that you are better off with the scholarship reported on your sons returns not yours. Others will tell you if it is even possible to put it on your return.</p>
<p>The grants can NOT go on the parents return. They are earned income for this purpose and parents can’t report a child’s earned income, only unearned income. The student reports them as taxable and then the parents use the additional expenses for the AOC. Yes, the AOC is generally more valuable to the parents than the extra tax the student may owe.</p>
<p>Pub 970, page 6 tells how and where to report taxable scholarships/grants on the student’s return.</p>
<p>It total income is below the filing threshold and there is no withholding from jobs to get a refund, then you don’t have to file a return for the student. Filing anyway could create something of a paper trail but all you really need is good doc from bills/online account printouts and cancelled checks, receipts or other records of payment. You need that doc whether the student files or not.</p>
<p>Here’s the link again to Pub 970. Chapter 1 is taxable scholarships/grants and Chapter 2 is the AOC.</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>The grants are HIS, not yours. You cannot put HIS income (regardless of the source) on YOUR return.</p>
<p>
</p>
<p>In some circumstances, a parent has the option of reporting a child’s unearned income on the parent’s return. I think that the best rationale for doing this is because it’s simpler than filing multiple returns (parent and child/children), because in any circumstance that I can think of where a child’s income is required to be reported, less overall tax would be owed if the child filed a separate return as opposed to putting the child’s unearned income on the parent’s return.</p>
<p>I think I understand now…if we take the credit, he has to file and pay taxes on the grants. If we apply the grants to QEE to reduce the taxable portion, then we cannot take the credit. </p>
<p>Are we able to split the amounts? If we apply enough grant money to QEE to leave him below the threshold to file with the remaining amount for the AOC? If would be less than $4000 so we would not get the full benefit of the credit, but that would be fine as long as it’s allowed.</p>
<p>Yes, you can manage the amount you make available for the AOC, it doesn’t have to be the full $4000. Understand that as a dependent on your return, he still gets a $6100 standard deduction, so only the amount of total income over $6100 would be taxed at 10%. If you want to avoid him filing even if you leave a little money on the table fine, but the 1040EZ is so simple it’s not a big deal. He has to start learning about taxes sometime.</p>
<p>One more thing, if your state has an income tax you need to look into that. My state, for example, treats taxable scholarships and grants as unearned income. My son had a lower threshold for filing a state return because of that and had to pay more state tax than federal because the standard deduction was lower.</p>
<p>Thanks, annoyingdad. Another question…the tax software asks if DS received any scholarships or grants in 2013…so the answer is yes. I then enter an amount but it does not ask about qualified expenses. Where would I enter the amount for the AOC credit?</p>
<p>What software are you using? The software I use asks for the 1098T info. It then asks for scholarships/grants and qualified expenses not reported on the 1098T. While the 1098T belongs to my son, asking for that info allows it to figure the AOC on my return.</p>
<p>Free Tax USA. It does ask the same things you mentioned but the 1098 actually has a little more than I figured for qualified expenses (it also has quite a bit more showing for scholarships/grants) so there isn’t an amount not reported on the 1098.</p>
<p>CDG…the 1098-T form is notorious for the possibility to be less than 100% accurate. Many on this board have documented numerous instances of this over the past few years. If your figures are different, and you have documentation to back them up, by all means use them!</p>
<p>What collegeparents said. Plus vary rarely would required books and supplies be on the 1098T. You should be able to match up the numbers on the 1098T with bills/online account amounts and see why your numbers are different. Either the 1098T is wrong or your numbers are wrong but you should compare and understand why they are different.</p>