<p>OK, so I sort of have a 2 part question, and they both require some set up, so here it goes.</p>
<p>I am a freshman in college trying to do all the fin aid stuff for next year. My dad is doing his taxes, and wants to know If I can take the American Opportunity Credit on my taxes instead of him, even though I am claimed as his dependent. the reason for this is, before last year, when he did taxes for FAFSA, my dad hadn't done taxes for a very long time. As a result, he owes more than $80,000 in back taxes. the IRS is garnishing his wages by a lot to get this money. any refund he gets is just immediately taken from that $80,000, so he will never see it. But on the other hand, I only have about $7,000 in scholarship money to pay taxes on, so if I did the Credit, I would probably be able to get a refund. BUT when I am using TurboTax, it says that usually you can't claim it if you are a dependent on someone else's taxes.</p>
<p>So after that, here is the 2nd question. My dad makes about $50000 a year, and the fafsa last year calculated his EFC as being $7000, and I made up the rest in scholarships and ended up getting no aid, but with his garnished wages, he is barely able to live comfortably, let alone give me $7,000 to pay for school. I think they are taking at least a third to half of every paycheck, even though he is trying to save face and won't tell me the exact number. is there any way to reflect this on the Fafsa when we do it, or could I notify my school of the situation?</p>
<p>If you are claimed as his dependent you cannot take the credit. Only he can claim the credit if he claims you.</p>
<p>If he does not claim you as a dependent you may be eligible to claim the non refundable part of the credit. This means you could reduce your tax liablility but not receive any money excess of your tax liability. So if you have a $300 tax liability you can reduce the liability to $0. You probably cannot claim the refundable part of the credit. To be able to claim the refundable part you would have to show that you are providing more than 50% of your own support from earned income.</p>
<p>(the AOC of up to $2500 is partially refundable and partially non refundable. Non-Refundable means you can only reduce your taxes but cannot get back more than the tax liability. For instance the non refundable part of the AOC is $1500. To get the full $1500 benefit you must have $1500 tax liability. If you have say $600 tax liability you can get the credit for $600 but you cannot get the other $900. Refundable means you can get the money even if you have no tax liability. The refundable part of the AOC is $1000. So even with no tax liability a person can get the $1000 assuming they have $4000 of qualified expenses. But the rules are set up to make it difficult for a student under age 24 to claim the refundable part unless they have a fairly good earned income).</p>
<p>There is no way to reflect your situation re the garnished wages on FAFSA. In certain situations schools can make adjustments to your FAFSA but it is usually for things like high medical expenses. Debt is not considered. I don’t think your situation would qualify for such an adjustment, but the best thing is to ask your school.</p>
<p>Do you mean your taxable income (after your standard deduction) is $7K or your AGI is $7K? I looked at your previous post and you said that your scholarships were around $12K and you’re at UF…so I’m wondering if you didn’t use all of your qualified expenses to offset a portion of the $12k scholarships. If that is the case, neither you nor your dad are eligible for the AO tax credit because there are no more qualified expenses available to base it on. In other words, you can’t use the same tuition, fees, and books to reduce your scholarships and grants and then turn around and use them again for the credit because the IRS doesn’t allow double dipping…which is unfortunate, but fair. I’m guessing your AGI is around $7K so you’ll take a $5700 standard deductions and owe around $130 in federal income tax.</p>
<p>For 2011, you probably won’t have as much in private scholarships, right? If the tax credits are still available, I’d say that dad should take them and pay the small amount of tax due at the student’s rate in order to maximize his credit. Although it won’t put money in his pocket immediately, a $2500 credit will reduce his 2011 tax liability so more of his witholdings/estimated payments will go toward wiping out the past debt more quickly…it will end up in his pocket eventually!</p>
<p>I got to be Honest, this is my first time doing Taxes, and I am just following the prompts Turbo Tax is giving me. I don’t understand about half of that first paragraph. What is AGI? One of the prompts on Turbo tax told me to take all my scholarships and minus the tuition and cost of books, and that is how I got that number, I didn’t count the scholarships from this semester, so it does not add up to that full over $12000 I put on the other board. Am I sopposed to put the full years? I haven’t finished it, but the Turbo Tax so far says I owe $16. </p>
<p>and the other AOC doesn’t matter anyway anymore, because apparently my dad can’t do it anyway because he is married filing separately.
but I am still freaking out about the garnished wages part of my post. I have enough recurring scholarships to pay almost all of tuition, room and board, I still endup owing the school about $800-$1000 every semester. but then I would have to use loans to pay that and buy my books. I have been applying for jobs like crazy for over the summer, but every place I have applied says they don’t want to hire anyone for just over the summer. I don’t even know where I am going to stay over the summer, my dad had to move out of his apartment and is renting a room from a friend for a little less than $300 a month, cause he couldn’t afford the rent at the apartment.</p>
<p>Okay…it’ll be much clearer if you actually look at the 1040(or 1040A) form. I don’t use TTax, but you can probably pull that up under a tab labelled forms or something like that.
So, assuming you claimed 1/2 of the $12k scholarships (or $6000), had no other earned income from work, and used your Fall tuition, fees, and books (I’ll use $3000 just to have a nice round number) to offset scholarship income it would look something like this:</p>
<p>Earned Income (line 7) is $3,000…that’s your grants/scholarships less your qualified expenses
AGI is Adjusted Gross Income (line 21), which is probably the same as line 7
Standard Deduction (line 24) can be as much as $5700 (but will be less if your AGI is lower than that)</p>
<p>AGI - Standard Deduction = Taxable Income so you must have something left to enter since you have a tax liability.</p>
<p>Clear as mud, huh? You’re on the right track I think…you only claim as income the portion of your grants/scholarships (but never loans) that applied to 2010. Do the same with the 2010 qualified expenses (tuition, fees, books). Subtract the expenses from the grants/scholarships and that’s what will be added to your earnings for the year (line 7). If that’s not what the Turbo Tax 1040A shows, then there’s probably a data entry problem that you can find/fix on the supporting schedules.</p>
<p>On a separate note, I’m not sure why your dad is filing his taxes as married filing separately…it sounds like your parents are separated and you are his dependent? Seems like he would qualify for head of household status and your other parent would file as married filing separately. But, that’s a whole 'nother kettle of fish and maybe they have some other arrangement as far as that goes.</p>
<p>I’m not really sure how his filing works, but he and his wife have not lived in together for about 6 years, maybe a little more, so I don’t think that is a household, right? I will tell him what you said about that though. </p>
<p>and I did end up having left over because my scholarships were given to me unevenly, I got a lot more 1st semester then I did 2nd</p>
<p>Head of Household is a specific tax filing status for people who aren’t Married, Filing Jointly but have dependents…the presence of dependents makes it a “household”. You can get the definition/criteria on the irs.gov website. If your dad had a paid preparer filing all his back tax returns, they should have considered which tax filing status to use. If he did it himself, he’s going to want to make sure that he filed with the correct tax status as it makes a difference in the amount of standard deduction that one gets. HoH has a $8350 deduction, while married, filing separately only gets $5700.</p>
<p>but they are still married, so doesn’t that mean he has to file as married? they never did any kind of formal change, he just moved out 6 years ago, and has always been filling as married, filing separetly.</p>
<p>Yeah, it makes a difference. If he filed incorrectly in the past few years he can do an amended return and that should help remove some of those back taxes. It’s Form 1040X. With that kind of tax liability he would probably be better off using a tax professional. I’ve seen cases where the IRS sent bills for tens of thousands and when the taxes were finally filed correctly, the actual tax liability was a small fraction of that. Good luck!</p>
<p>How much does it cost to have a professional do it? I was under the impression my dad has always done it himself because it was super expensive and it was geared toward people with a lot of invest ments and property. An also, I think I took this thread way off the topic of fin aid, lol</p>
<p>Well, you’ll see a lot of tax posts this time of year, and it does impact his ability to support you (and himself!)…we are not licensed to give tax advice though, so please make sure that you refer him to the irs website for more info. </p>
<p>Tax preparers are really not very expensive and come in all varieties…I would avoid the “tax shop chains” like H&R on this one and go with an actual accountant. It may cost a few hundred dollars…but if they can eliminate thousands in back taxes, penalties, and interest, it would be well worth the cost. That’s been my experience anyway…I’ve seen several cases where people were ready to pay (and had accounts frozen, etc.) the amount the IRS calculated, which was grossly inflated. But the IRS has no way of knowing how the taxpayer actually should have filed, so they have to make certain assumptions or accept the incorrect return and the fees/interest are then added on top of the inflated amount of tax due. You can see how the whole thing starts to snowball…</p>