year-end tax planning for parents of freshman

Paying for College
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The tuition and fees deduction will almost never (probably never) be the better tax benefit to take. It is a deduction rather than a credit. That means it reduces your taxable income by up to $4000. The AOC is a tax credit. This means it reduces your taxes by up to $2,500. For the tuition and fees to be a better break you would have to have a tax rate of more than 62.5% (4000 x 62.5% = $2500). And there is no 62.5% federal income tax rate.</p>

<p>Additionally, up to $1,000 of the AOC is a refundable credit (meaning you can get it even if you have zero tax liability).</p>

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<p>Ah, I knew I was missing something – that’s a deduction from income, rather than a tax credit. The tax credit is definitely better :)</p>

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<p>mathmomvt, </p>

<p>Do you know when the student normally receives the 1098-T? Do they send it prior to Dec 31st?</p>

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<p>Like most tax documents, it is supposed to be sent by January 31st. it’s unlikely you would get it by Dec 31st. Some schools enable you to access it online. But it would still be after Dec 31st.</p>

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<p>It becomes available online in late January.</p>

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<p>This is what I did, because if I had used the 1098 numbers, they would have shown that for D1s last calendar year of school, we received FA grants, but no tuition was charged. That’s because, starting with the fr year 1098, the school showed the full year tuition being charged, but only fall semester of FA grants being given due to the offset between when we had to pay for tuition (Dec) and when FA funds were released by the school (Jan). Here’s the old thread where it’s discussed, as well as links to other related threads:</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/875081-scholarships-taxable.html?highlight=1098[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/875081-scholarships-taxable.html?highlight=1098&lt;/a&gt;&lt;/p&gt;

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<p>Thanks entomom!</p>

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<p>I spoke to the bursar and they said spring tuition will show up on the 2010 1098-T but there’s “no way to know” whether their own institutional grants will post in December or January :-/ I’m guessing it will show up in January, in which case we will be in entomom’s position.</p>

<p>entomom, if you’re still reading it sounds like you paid for the spring each year in December and just counted the spring FA grants against that even though they weren’t reported on that year’s 1098-T – is that right?</p>

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<p>Yes, I paid for spring semester in Dec so it shows up in that year’s 1098. But the college released their grants in Jan, so they show up in the following year’s 1098.</p>

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<p>No, what I did was to report all numbers for the calendar year that the semester occurred in. So, for example, my D1 was a fr in fall 2007, so for 2007 taxes, I reported only for fall 2007; for 2008 taxes, I reported spring 2008 and fall 2008, etc. Here are the numbers the 1098s showed and the numbers I used for taxes:</p>

<p>For 2007 taxes, the 1098 showed tuition for fall 2007 and spring 2008, but only fall 2007 grants. On my taxes, I reported tuition for fall 2007 and grants for fall 2007.</p>

<p>For 2008 taxes, the 1098 showed tuition for fall 2008 and spring 2009; and grants for spring 2008 and fall 2008. On my taxes, I went back to the earlier 1098 and added the spring 2008 plus the fall 2008 tuition; the grants on the current 1098 were fine because it showed both semesters for the 2008 calendar year.</p>

<p>I did the same for 2009 and 2010 taxes. </p>

<p>Then for 2011 taxes, I reported tuition and grants for her final semester, spring 2011.</p>

<p>The numbers all added up in the end, it was just that the tuition was offset a semester from what was shown on the 1098. If I hadn’t done this, her 2011 1098 would have shown grant money but no tuition charged for spring 2011. I though that would be harder to explain than my numbers which synchronized both tuition charges and grants.</p>

<p>Hope that makes sense, clear as mud I’m sure, it drove me crazy the first year!</p>

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<p>Ok, that makes a lot of sense entomom, thanks. I think that is the right thing to do. I have the same concern about the spring of graduation showing only grants and no expenses, so “saving” the expenses for the year in which they apply to makes sense. </p>

<p>I have to do something similar for some of my DH’s business income so I’m familiar with the idea of having things on my tax return not line up exactly (with 1099s in this case).</p>

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<p>This drove me crazy at first…sometimes the school (Miami U - Oxford) would disburse aid in the first few days of Jan and in other years at the very end of Dec. Finally I received this explanation from the school…and it was all cleared up. I assume all schools must follow rules as explained below?</p>

<p>“Miami has to follow the guidelines set down by the federal government which says Grants, Loans and Scholarships from the Office of Student Financial Assistance must be disbursed 10 days before the first day of the semester. The First semester always starts in August so the aid will be disbursed during that year and be reported on the 1098 t for that year. However second semester starts according to the academic calendar. Second semester of the 2009-2010 academic year began January 11, 2010 and aid disbursed January 1st 2010. Second semester of the 2010-11 year began January 10, 2011 and aid disbursed December 31st, 2010. The second semester of the current academic year (2011-2012) begins January 9, 2012 so financial aid will disburse December 30th, 2011. Next year (2012-13) the second semester begins January 14, 2013 and aid will disburse January 3,2013.”</p>

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<p>Thanks for that insight collegeparents. I think that might only apply to government-funded grants like the Pell. It looks like all of my son’s aid was disbursed on his December 7th bursar bill (which is the bill where tuition was charged also) except for his Stafford loans, even though spring semester doesn’t start up until late January. I <em>assume</em> that means that his (school-funded) grant aid will show up on the 2011 1098-T. So I am again wondering if it would be more convenient tax-wise if nothing else to pay his tuition by the end of the month. It’s due by January 7th anyhow, so I have to pay it either just before or just after the year-end. </p>

<p>I guess I need to check the relevant IRS publication to see if I can just claim his spring’12 tuition and grants in 2011 if they were paid/disbursed/1098’d in 2011, or if it has to be during the calendar year when the tuition was paid <em>for</em>.</p>

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<p>I’m pretty sure that technically it is the date when you actually paid the expense…</p>

<p>If you wait until January, 2012, you are looking at the 2012 tax year. As has been mentioned earlier in this thread though, I know parents who are using “their own schedule.” When you try and match up tax calendar years with academic school years it will always be confusing.</p>

<p>I have always tried to make sure my 529 withdrawals match up with the expenses we pay (calendar wise)…just to prevent raising any audit flags. However, if a parent stays consistent with how this is handled I would guess it would pass muster in the event of an audit.</p>

<p>It would be nice to hear from anyone on CC who has ever been audited regarding the timing of 529 plan withdrawals, and how it went.</p>

<p>As far as the AOC, I think it is pretty cut and dried. To claim a tuition expense, the expense must match up with the tax year.</p>

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<p>We won’t be doing a 529 withdrawal for spring tuition, so that makes things somewhat easier.</p>

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<p>Thanks for the info collegeparents. I can’t remember if D1s spring semester always started later in Jan, but it probably did, thus resulting in the mismatched tuition and FA, since tuition payments were due in Dec.</p>

<p>I found out last week that I have until Jan 2 to pay for D2s spring semester. Since her school starts on the 17th, I’ll definitely leave it until the last day in the hopes that tuition and FA will be in synch on 1098s for the next 4 years.</p>

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<p>I am back.</p>

<p>DS just received his 1098-T for 2011 and it shows only amounts for fall semester (for both billed and scholarship/grant). So, if I went with this, our qualified expenses would be less than $2500. However, the school billed and I paid for winter semester in Dec 2011. If I accounted the qualified expenses for winter semester also, the total qualified expenses would be over $4000. So, this tax year, can I claim the AOC based on both fall and winter semesters? I will keep the monthly invoices from the school as proof… just in case.</p>

<p>What do you think?</p>

<p>Also, can the cost of laptop be considered a qualified expense? I do not think we can find any proof that it is a ‘required study material’, but it is. Thoughts?</p>

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<p>Even if you could do that, would you want to? </p>

<p>I’m just thinking that that means you’re splitting up bills and scholarship/grant for winter semester between different tax years. I always avoided doing that, because in the final tax year when the kid is a sr, there will be scholarships/grants to be reported, but no bills to subtract, as the tuition was accounted for in the previous tax year.</p>

<p>I always thought laptops were not a qualified expense, but would love to hear otherwise ;).</p>

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<p>Laptops would be a qualified expense if required of all students in the program; otherwise, they are not.</p>

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<p>Thank you for the replies.</p>

<p>entomom,
I wasn’t thinking of splitting winter bills. I was thinking of accounting all of winter bills and scholarship/grant in 2011 tax year. Is that possible? I am not worried about senior year now, because, by then he won’t qualify for any aid at all. I would probably do it only for year 2011.</p>

<p>So, it is possible to report total fall and winter bills and grants in year 2011 although 1098-T shows only that for fall semester?</p>

<p>kelsmom,
He is in a computer science program, so all kids to need their own computers to do projects. But, how would I prove it in case of an audit is my concern.</p>

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<p>Arutha, unless it says somewhere that everyone in the CS program is required to buy a laptop, I think you’re out of luck on that. There are a few schools that do that, including some that require a specific laptop with software to be bought through the school, but most don’t. My S is also in a CS program, and while having a laptop is very handy, there are computer labs he <em>could</em> go to to work on projects if he didn’t have one (and sometimes he has to anyhow if he doesn’t have all the necessary software on his laptop). I don’t think just being in a CS program is sufficient to prove that a laptop is necessary.</p>