Turbo Tax and College / Education Credits

Parents Forum
1

Not sure how many use Turbo Tax. Every year I say, I should get an accountant. But I figure they use software too and if I’m missing stuff, what if they do.

So my taxes came out unusually high this year but I compared vs. the last few years and noticed it was likely the 529 that did me in.

Turbo Tax says they ask you all the questions - I do the walk me through everything. Yet, there was an additional section that asked about your kid - are they half time or more, etc. I find it on my own and then all of a sudden my thousand dollar plus “owe” went to a slight refund. I had to find that section myself…they never presented it.

That was my vent - So I got that fixed (I hope) - but here’s my real question:

My son has had two years of the American Opportunity Tax Credit. This year he got none - it says his net qualified educational expense is 0. His tuition is about $32K and his scholarship is $28.5K. Additionally, I put in about $13,934 other expense which is what the school lists for room and board.

My daughter actually has a better scholarship - it exceeds tuition. Yet she got a $500 AOC credit.

Why didn’t my son - the government says you can get four times. What am I missing?

If any thoughts, I’d appreciate it.

Tax software scares me - I always wonder if I paid too much - it’s sort of a blind thing with the complexity. There’s just no way to know.

Thank you.

2

Did you cover the other expenses from the 529? You can’t double dip.

3

OK - in reading the AOC says it’s only tuition.

So I took $18K out from the HSA - but when you take it you don’t state what it’s for - you just take an amount.

But that’s basically $3K for tuition, $1K for books and $14K to live (I use the school published #).

My daughter - her scholarship is larger than tuition but says she got $500.

Maybe i’ll play around with the expenses I listed.

Or I’ll throw in the towel. I have $6K higher AGI than last year and it’s calculating $1300 higher in a tax payment…so it’s probably about right.

I’m miffed that Turbo Tax didn’t ask the question though to get me the $500 - I had to seek it out and then it calculated it.

Thanks for the insight.

4

So you didn’t have any expenses that weren’t covered by the 529? If not then there’s nothing left to claim the AOC against.

Most scholarships are not specifically tied to tuition or living expenses. But she should be declaring the amount used for living expenses as a taxable scholarship. Won’t cause kiddie tax problems unless her total income (taxable scholarship plus earnings) exceeds $12550. If you don’t use the 529 to cover the remaining educational expenses (tuition plus room and board) then you can declare more of the scholarship as taxable to free up unreimbursed tuition to claim the AOC against, assuming the scholarship is not restricted (D’s scholarship lists money for tuition and for accommodation separately so we can’t do that). But I think she can only claim it (you said “she” got it) if she’s providing more than half of her own support (total living expenses excluding any scholarships).

5

According to Turbo Tax, she doesn’t declare the scholarship, the parents do - so she didn’t have a job last year so there was no tax return to do. It’s all merit aid from the school except a one time $2K award from my employer.

The 1099 Q is made out to my wife and me (we have two 529s). It shows gross distribution.

I know part is phased out because of our AGI is over the threshold.

I’ll play around with the #s to understand better - but that makes sense - if you cover all your expenses from the 529, you shouldn’t get AOC.

I wonder why my son did his first two years. He’s a Junior, she’s a freshman.

It sounds like maybe i’ve erred in the past??

While I’ll hate to lose my two dependents in a few years (higher taxes) - i think just having income and investments with no college will make my taxes go more smoothly!!

Of course, when they’re in grad school - maybe not.

I appreciate the insight. This is one confusing area!!!

Just to add - the 1098 T shows the payments and scholarship (box 1 and 5). I assume box 1 = total payments (including room and board which my son doesn’t have).

So if there’s a $3K delta for my son and I claim 18K (the other 15K is books and room/board) - well not sure how it figures it out - but turbo tax has you fill out a worksheet. That’s all I fill out is those categories…not others.

But yes, I do recoup the $$ - or try to. So that’s the answer (for my son anyway).

Next year my daughter’s living expenses will be higher than the allotment (crazy rent in Charleston) - so i assume I can claim all her expenses in my taxes for credit consideration…but yes, I know on the 529, I have to max out on the school published figure.

Thanks

6

No, I think you can only count expenses up to the limit.

7

Ok. I’ll look to confirm and my friend works for the irs and moonlights as a turbo tax love guy.