<p>This is our first tax season with a college student in the house, so I hope you'll indulge some newbie questions. So as not to confuse myself, I'll ask them in small bites. These are the first of many:</p>
<ol>
<li><p>D's only earned income was from her work/study job, and was well under $1000. Is she required to file? </p></li>
<li><p>Can we claim her on our return? I've just been reading some scary things about how student loans are considered to be self-support, and may have cost us her dependency status? For school year 2009-10, she had federal loans of $5,500 and a private loan of $10,000 (don't get excited; we are going to repay the private loan, but it is in her name which I assume is what matters for tax purposes). Is it possible that with those loans, she is paying more than half of her support? How would we calculate that?</p></li>
<li><p>She received a 1098-T. I've done enough reading on this forum to know that the 1098-T is universally confusing, but the college enclosed some info with the form which is actually semi-helpful. I think we'll go with the approach of trying to match qualified expenses and grants/scholarships for each calendar year, and keeping careful records of what we're doing. My first questions about the 1098-T are:
a) Once we figure out our numbers for qualifying expenses and grant/scholarship income, where do they go on the return?<br>
b) Her return or our return?<br>
c) Qualifying expenses are going to exceed grants/scholarships; does that have any bearing on anything?</p></li>
</ol>
<p>I am NOT a tax expert but here is what we did.</p>
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<p>She is not required to file.</p>
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<p>Yes you can claim her.</p>
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<p>If you are having her as able to declare her as a dependent AND do so, you can use that info from the 1098T yourself. It cannot be used both of you.</p>
<p>Just make sure her scholarships/etc do not exceed allowable expenses. If they do, they are considered taxable income for HER.</p>
<p>State exemption/standard deduction amounts are often much lower than federal. Make sure she doesn’t have to file a state return. Also, if she had federal and/or state withholding, she may want to file to obtain the refunds. As noted above, you can claim her as a dependent.</p>
<p>sryrstress, we checked and she’s not required to file for the state either. After spending an hour struggling with forms and instructions, she decided to forego her $23 state refund. </p>
<p>thumper, scholarships/grants do not exceed allowable expenses. So what do we do with the info on the 1098-T? My understanding is that it’s used to arrive at the qualified expenses which go on Form 8863, which in turn is used to help us identify which credit to claim on 1040. Is this correct?</p>
<p>How hard can it be to struggle with forms? Many different companies have free online tax software that let you file online for free. It takes probably 30 minutes for her to type in the information and then the money will be deposited about 9 days later.</p>
<p>And the struggles that she goes through this time will payoff in years future, as the forms and instructions generally are the same from year to year. The first year is a learning curve but it gets easier after that.</p>
<p>While in college, my dad did my taxes. He figured that he didn’t mind spending a little bit of time to help me out, even if it only meant a $23 refund. I’ll do the same for my kids.</p>
<p>I agree with Big Trees. Doing a simple return is a good way to learn how the system works and will help in future years when it gets complicated. It’s free if you print out the return and send it in. The Federal can usually be filed for free but most programs charge to file the State, so print it and send it in.</p>
<p>You use the qualified tuition and fees after the scholarships are subtracted to come up with the amount that you can use for the tuition credits on the Form 8863. This credit goes on the parent’s return since the student will be claimed there. Since the student is a freshman, the credit you use will be the American Opportunity Credit. That assumes that your income does not exceed the limits for claiming the credit. If your income also falls within the limits for the Tuition Deduction, figure it out both ways and see which give you a bigger refund between Federal and State.</p>
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Since the student is a freshman, the credit you use will be the American Opportunity Credit.
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<p>I read the instructions for Form 8863 very carefully last night, and missed this. Could you tell me where is says freshmen use the American Opportunity Credit? Thanks.</p>
<p>A word of explanation about D’s tax return: I guess it does sound like we surrendered without much of a struggle. I agree with both of you in principal. However, we got stumped on the very first question of the form, something about “Check here to indicate that you lived and worked in the state on Jan 1, 2009.” She did not, and there was no other line to check, although the instructions had pointed us toward that specific non-resident form. You’re right, though, we should have gone back to the instructions to figure out where we went wrong in deciding what form to use. (BTW, there were 3 supporting schedules to complete as well).</p>
<p>Even so, I should have made her do it, and normally I would have. This is a really difficult time in my family. We’re moving my aging parents from their own home in another state to assisted living near my home – in less than 2 weeks from today. This was a fairly sudden decision, and unless you’ve been through it, you don’t have any idea how complicated, time-consuming, and physically/emotionally exhausting it is. I have done little else for the last 4 weeks except work on that project. Then along came this monkey wrench in my own taxes which I have no choice but to figure out. So when, late last night, D finally gave up and said, “It’s just not worth it to me to get the $23 back,” I just didn’t have it in me to push back.</p>
<p>Our kiddo is a college student also. She is still a dependent on our tax return. We use the 1098T information to get the tax credit on OUR taxes. The 1098T simply verifies what the costs billed were…minus any aid the school gave my kid.</p>
<p>DS is no longer a dependent on our taxes…HE will use the 1098T info on HIS taxes to get the credit.</p>
<p>I started filing for taxes when I was 12, and started them completely on my own since I was 18. It is fairly easy to them on a computer program; as long as you have simple taxes. Most college students do not have complicated returns. She has to learn how to do this because they will only get more complicated.</p>
<p>Yes, Nova, I’m aware of all that. If you could look at Indiana’s website and tell me which form a non-resident college student should use, I’d be much obliged.</p>
<p>I found that my 1098-T was inaccurate. They did not include all applicable fees only tuition (there were a number of small qualifying fees they did not include). Also we allocated some of the scholarships to room & board which then made them taxable to my DD. Since DD’s income plus the taxable scholarship/FA was still less than the allowable income and did not incur Fed&State taxes we chose this route. It then allowed me to obtain the maximum value of the AOC. My DD did still file tax forms so that if we were ever audited we could show exactly what was done. Next year it may be different depending on how much income she earns. It may still be advantageous for her to pay a small tax on scholarships in order to get at least some of the AOC. I made a spreadsheet for all allocations and will keep a copy with my 2009 tax forms so I can remember how we allocated everything.</p>
<p>We’re trying to figure out DD’s state tax form issue. She worked ONLY in CA which is where her college is located. She earned more than $7000 last year. $2700 was work study. The rest was from the same campus job…but not W-S (it was summer work). No deductions were made for state or federal taxes. We know she has to file federal taxes…but we are so unclear about state taxes. She is NOT a resident of CA…so IF she has to file, it would be as a non-resident. But does she have to file in CA?? Also…she earned NO MONEY in CT (her state of residence) so does she have to file a CT state tax return?</p>
<p>Very confusing when they work out of state. I think we may need to contact an accountant on this one.</p>
Sorry. I was trying to find a way to word it to make sure everybody knew that not every student can use it. You have to be a full time undergrad student enrolled in a qualified institution and working towards a degree. So your freshman qualifies. </p>
<p>Thumper: your student working in CA would file a Non Resident California return only if what she made exceeds the standard deduction. The standard deduction depends on whether you claim her or not. Technically, she should also file in her own state and get a credit for the taxes paid to CA which most likely means zero tax in her home state.</p>
<p>You use this form is you don’t qualify for the recipriocal tax form (which your post indicates that you don’t.) It should take maybe 30 minutes to fill out, so your daughter will get paid $60 an hour for her troubles.</p>
<p>Oftentimes colleges have volunteer tax advisors that can help with it to. She still has a month to figure it out, so I’d encourage her to look into it. She’ll run into the same problem most every year until she settles down.</p>
<p>Yes, those out of state tax forms are a royal pain! D earned a small amount of money in DC, who informed us that since she lived in a dorm there for more than half the year, they consider her a DC resident. Of course, she (and the state of PA) considers her a PA resident. Luckily, no taxes were taken out for DC, and their form also states that you do not have to file a DC form if you are not required to file a federal form. So even though she was filing to get a small federal refund, she was not required, so we could comfortably skip the DC. If she stays there this summer and works, we’ll have to file 2 next year though.</p>
<p>bigtrees are you talking to me? I have no idea what you are talking about. My daughter is a college senior who is moving back HERE in June. She never had to file any taxes before in college because she never earned more than the limit. This is a first…and a LAST for her.</p>
<p>OP–Is your D’s W2 from Indiana? If wages are under $1,000, one is not required to file in Indiana. A taxpayer in Indiana gets his own exemption regardless of whether they are claimed as a dependent on their parents’ return. </p>
<p>I disagree that someone should “use it as a learning” experience for $23. Time and frustration are worth something–sometimes a lot. Coupled with the other stress your family is currently under, I definitely don’t think it is worth $23. You are not alone in your thought process on this. I have many clients each year who do not bother with their children’s returns because the refund is so small.</p>
<p>Also, Indiana’s individual returns were previously 2-3 pages, with minimal attachments and sub-schedules. In their infinite wisdom, the return is now a minimum of 10 pages–for just about everyone. Out-of-state returns are a hassle. The Indiana Dept. of Revenue is much more difficult to worth with the the IRS.</p>
<p>The basic forms for part-year/non residents for Indiana are IT-40-PNR and Sch IT-40PNRA. PM me if I can answer other questions.</p>
<p>Thanks all for your replies! Nova, I owe you an apology; my stress is making me snarky.</p>
<p>Several of you mentioned Indiana form IT-40PNR, which is the one I identified too. What stopped us cold before we could even get started was this question, right below the address info:</p>
<p>“Enter below the 2-digit county code where you lived and worked on January 1, 2009.” Problem is, on 1/1/09, D was a high school senior, not working, and living in California. What should we put in those fields?</p>
<p>Enter “00” for the county of residence and the county of work. This is for “Out of State.” Taxpayers only pay county tax if they are a resident of, or working in, a county on January 1st. Good thing too, as some of our county tax rates are almost as high as the state tax rate.</p>
<p>Thanks for this, 3bm103. So once I’ve calculated qualified educational expenses (less scholarships/grants), then it looks like we have 4 options: From Form 8863, there is the American Opportunity Credit, the Hope Credit, and the Lifetime Learning Credit. Or from Form 8917, we could take the Tuition and Fees Deduction. I’ve eliminated the Hope Credit simply because it’s good for only 2 tax years (and it’s less). Am I understanding all of this correctly? Is there any conventional wisdom about which is best? (My plan is to run the numbers for the AOC, the LLC, and the deduction; the little worksheets won’t take me long once I’ve arrived at the expense figure.)</p>
<p>One more detail which may or may not make a difference: D’s school is in a Midwestern Disaster Area which, if I can believe my eyes, doubles all 3 credits, and also means that her housing counts as a qualified expense – which might make the deduction more attractive than the credits. Am I reading this right?</p>