Scholarship income & AOC confusion...could you help me please?

Paying for College
1

<p>I have been trying to read & understand publication 970 but am still "somewhat" confused.
Can you help me figure out how much I can claim as qualified "tuiton & fees" expenses & "Course Materials" on my 2012 return towards the AOC? How much Scholarship Income should she claim on her Tax Return?</p>

<p>My daughter was not issued a 1098T for 2012 & the college billing site states that payments for Spring 2013 Tuition will be reported on 1098T for 2013. I will be claiming her as a dependant on my tax return. </p>

<p>Her total scholarships for Spring 2012 are $20,407. Her total qualified fees/tuition/books for Spring 2012 are $15303(includes $148 books/supplies). Her total scholarships for Fall 2012 are $13,124. Her total qualified fees/tuiton/books for Fall 2012 are $16,803(includes $1048 books/supplies). In addition, payments were made in Fall 2012 using $3,218(loans) & $4,598(PA529 distribution). </p>

<p>A payment also was made by personal check by her grandfather towards her Spring 2013 Tuition bill that was credited to her account on 12/31/12. Also, additional payments were made towards Spring 2013 using $3,218(loans) that were not credited to her account until 1/9/2013. Her total scholarships for Spring 2013 are $13,124(credited to account in January 2013). Her total qualified fees/tuiton/books for Spring 2013 are $15,902(includes $147 books/supplies bought in January 2013).<br>
Room & Board was $4,450(spring2012), $4,635(fall2012) & $4,635(spring2013).</p>

<p>Her total wages in 2012 for working summer jobs is $2,348. </p>

<p>One thing I am considering is having her claim $3,600 scholarship income on her 2012 return since this is the highest amount that does not reduce her income tax refund & then claiming $2,631 as Tutition & fees toward the AOC. The figure $2,632 being derived by subtracting $13,124(Spring 2013 scholarships) from $15,755(Spring 2013 Tuiton & fees, NOT including books(paid in Janurary 2013) which is less than the personal check payment made by her grandfather. </p>

<p>Does that jive? Or am I figuring this out all wrong? Please help. I have spent so much time on this I am almost in tears.</p>

2

<p>How much did the grandfather pay for Spring 2013 tuition on 12/31/2012 by personal check?</p>

<p>That information is needed to answer your question.</p>

<p>Amounts that others pay for her tuition can count toward the $4,000 needed to get the full benefit of the AOC.</p>

3

<p>I’m sorry, I meant to put that in. He paid $4,048 on a personal check.</p>

4

<p>The check from the grandfather is relevant to tax year 2012. Unless I missed something all other spring 2013 amounts, loans, scholarships, r&b were paid/credited in 2013 and are irrelevant. They are just confusing things.</p>

<p>The expenses needed for the max AOC is $4000. As a family you will make out best by claiming $4000 expenses in 2012, making whatever scholarship amount taxable that is necessary to be able to claim $4000 expenses. Even if it reduces your daughter’s refund, you will get more benefit with the max AOC. Make it up to her from your larger AOC.</p>

<p>Are you doing this by hand or using software?</p>

<p>With the grandfather’s check having been credited in 2012, it may hurt some for tax year 2013 depending on how much in scholarships she gets in 2013.</p>

5

<p>You need to have $4,000 of qualified education expenses (QEE) paid ‘out-of-pocket’ in 2012 on which to claim the $2,500 American Opportunity Credit (AOC).</p>

<p>The amount the grandfather paid on 12/31/12 for 2013 tuition of $4,048 satisfies that. However be sure to keep track of that when you prepare your 2013 tax return next year.</p>

<p>Also, based on the information you provided, your daughter received scholarships in 2012 ($20,407 + $13,124 = $33,531) which exceeded her 2012 QEE ($15,303 + $16,806 = $32,106) by $1,425. Therefore, she must report $1,425 of the 2012 scholarships as taxable income.</p>

<p>Why didn’t the school issue a 1098T for 2012?</p>

<p>I am not sure why you are trying to take into account amounts for 2013 paid in 2013 for the 2012 AOC (the second to last paragraph).</p>

6

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<p>Likely because scholarships exceeded QEE. I haven’t done the math but some of the expense amounts included books/supplies that the school didn’t bill for.</p>

7

<p>OP, if you are using tax software this can be relatively easy to coordinate between the two returns.</p>

8

<p>Yes, I am using H & R Block tax software. As far as taking into account, amounts for 2013 paid in 2013. I was just mentioning them in case there was something I wasn’t understanding. I didn’t really use them to figure anything except qualifying tuiton that isn’t going to be paid with Scholarships in 2013. I think I should reword the last paragraph maybe more like this?: </p>

<p>One thing I am considering is having her claim $3,600 taxable scholarship income on her 2012 return since this is the highest amount that does not reduce her income tax refund, thereby reducing her total 2012 non-taxable scholarship income by $3,600 & claiming the $2,175 difference (between 2012 non-taxable scholarships & qualified tuiton/fees expenses) as Tuition & fees toward the AOC and then also claiming additional $2,631 as Tution & fees toward the AOC figured by subtracting $13,124(Spring 2013 scholarships) from $15,755(Spring 2013 Tuiton & fees, NOT including books(paid in Janurary 2013) which is less than the personal check payment made by her grandfather for 2013 semester. Making a total of $4,806 qualified Tuiton & fees paid towards the AOC.</p>

<p>But, can I allocate the PA529 Distribution towards room & board and then allocate the loans toward tuition thereby also claiming the $2,175?</p>

9

<p>Quote by Annoyingdad:
“With the grandfather’s check having been credited in 2012, it may hurt some for tax year 2013 depending on how much in scholarships she gets in 2013.”</p>

<p>I don’t expect her fall 2013 scholarships to look much different than the sprint 2013, but am not sure I can bank on the AOC to be available to take in 2013 and this Spring 2013 is her second semester of her 2nd year in college.</p>

10

<p>You only need $4000 expenses to get the max AOC, no need to go above that. And I wouldn’t worry about reducing her refund. Make it up to her out of your AOC. You still make out better as a family.</p>

<p>Whose SSN was on the 1098Q from the 529 plan?</p>

11

<p>Does it matter if most of the scholarships & grants towards the Spring 2013 semester are credited to her account on December 10, 2012 and only one is credited to her account on January 5th, 2013? </p>

<p>If so, then I probably need to start this all over again. :(</p>

12

<p>The SS# on the 1099-Q is my daughters’.</p>

13

<p>It’s late & I think I need a break from this. Been trying to figure it out since noon today. Will revisit here tomorrow afternoon & see if any more understanding can be found. Thanks so much for the help so far.</p>

14

<p>Yes, it does matter that they were credited in 2012 and makes it more likely that scholarships in 2012 exceeded QEE and amounts paid in 2012. Were the spring 2012 scholarships all credited in 2012 or were some credited in 2011?</p>

<p>I don’t know how H&R Block software works but it should work similarly to Taxact and Turbotax. Are there questions and answers for inputting all the education expenses and scholarships from a 1098T and those not reported on a 1098T? </p>

<p>If so, you should be able to do your return first, input all the expense and scholarship info, and say you are putting $4000 toward non QEE expenses(hopefully there is a question asking this). It should use that $4000 for the AOC.</p>

<p>Then do your daughter’s return. Put in all the 2012 expenses paid and scholarships. Then is there a question that asks the amount of expenses the parent’s used for the AOC? Hopefully there is, you enter 4000 and then it will figure out for you how much of the scholarships are taxable. You should also put in the 1099Q info. It could be that some of the earnings from the 529 distribution have to be made taxable to take the full AOC. It still should be better overall for your family.</p>

15

<p>Some of the Spring 2012 scholarships were credited in December 2011 & some were credited in January 2012. So, now I am understanding that I must allocate only the scholarships, grants, 529 disbursements & payments that were actually credited to the account dated for 2012 to the 2012 return. Is that correct? Also, that I must allocate only the charges charged to the account dated for 2012 to the 2012 expenses on the 2012 return. Is that correct?<br>
I’m sorry, if that might seem very basic to you, but that is something I wasn’t completely aware of. Be patient with me & I will get there.</p>

<p>I am beginning to doubt the H&R block software because it doesn’t ask me anything about scholarship info when doing my return, only my daughters. It does have a place for me to input education expenses not reported on a 1098T but again there is no mention of scholarship & it expects me to just figure the QEE myself according to what their description of QEE is. When I do my daughters return it asks me to input scholarship income. It does not ask what her Total scholarships are or what her total education expenses are. I assumed I had to figure out what the taxable part of her scholarships are on my own. When doing my daughters taxes it does not ask me the amount of expenses the paren’ts used for the AOC. </p>

<p>However, I did not purchase the most expensive upgrade(“Premium + State”) of the software either, I purchased the mid-range version which is called “Deluxe + State”</p>

16

<p>Yes, 2012 taxes are about amounts received and paid in 2012. Did you take the AOC for 2011?</p>

<p>If you repost all the amounts, only the ones for 2012, and if you can do it in a tabular format rather than a paragraph, we can try to figure it out.</p>

<p>For the future, I’ve been very happy with Taxact for 8 years or so. Of course Turbotax is also good but more expensive. Those are the two most widely used.</p>

17

<p>No, I did not take the AOC for 2011. Fall 2011 was her first semester in college & it was completely covered by scholarships/grants, the same as Spring 2011. No payments were made on her account other than scholarships. She even received $664 back which $589 of was spent on books leaving $75 left. She was not issued a 1098T for 2011 either. She did claim Scholarship income of $4,525 on her 2011 Tax Return. Figured by $4450(room/board) + $75 = $4525. </p>

<p>When I did the 2011 Tax Returns I didn’t even consider the billing & scholarships for Spring 2012. Honestly, I never looked at them untill after I prepared Tax returns because I knew it was all being paid for in scholarships/grants and I think I assumed that it would all be applied to the account in Jan.2012. Now I am worried that she should’ve claimed a lot more as Scholarship income on her 2011 Tax Return since the college credited $12,974 in Scholarships/grants to her account in December 2011 towards the Spring 2012 semester but never billed her account for the tuition & fees until in January 2012. </p>

<p>I have done my own taxes for over 25 years now with no problems & I know how to handle schedule C for my small business (sole proprietorship), but now this whole scholarship/tution/AOC crap has my head spinning. I have used H&R block for the last 5 or so years beause I am familiar/comfortable with the way it handles Small business/self-employment income etc…</p>

<p>I will work on setting up some kind of tabular format but have some errands to run first.</p>

18

<p>A fair warning: chances are more of your daughter’s income will be taxable than you think, and most of it will be taxable at your rate. Not that this makes it a bad idea to claim the AOC, but it will not be as big of a benefit as your expect.</p>

<p>The problem is that the IRS considers scholarship income as “investment income” for tax purposes (this is how they classify pretty much anything other than earned income). The first $1900 of scholarships will be taxed at her rate, but the rest is subject to the “kiddie tax” which is applied at your tax rate. It is more complicated, and you probably do need the highest level of software to complete her return, because you will need for 8615 to calculate her tax (and you will need to complete your return first).</p>

19

<p>That’s not correct.</p>

<p>From page 6 of the 1040ez instructions:</p>

<p>“2 Earned income includes salaries, wages, tips, professional fees, and taxable scholarship or fellowship grants.”</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/i1040ez.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/i1040ez.pdf&lt;/a&gt;&lt;/p&gt;

<p>State may be different. My state considers taxable scholarships/grants to be unearned income. Check into your state.</p>

20

<p>OP: you should consider amending your return and your daughter’s return for 2011 in order to report enough scholarship income as taxable, so that you can take the $2,500 AOC on $4,000 of qualified education expense.</p>

<p>A $2,500 refund is alot of money as compared to the small amount of tax your daughter may pay on $4,000 of income.</p>

<p>I had to laugh when I read that CTscoutmom thought that scholarship income was investment income taxable at the parent’s rate. This made an important point - be careful about obtaining tax advice from internet forums and seek help from a qualified CPA or other tax professional if necessary.</p>