Oh! @3scoutsmom, I somehow missed your second post. I think that’s a great idea! I have never hired a tax consultant before. Is it possible to find a good one this late in the game? I’d hate to pay someone to tell me what I’ve already discovered on my own – that would make matters worse. But do you think a tax consultant will have a work-around?
I don’t know but hey at least their services are tax deductable;-) I don’t know if they can help you or not but if I were in your position I’d pay them to see what they have to say. I do know when things get tricky tax software isn’t always correct.
The sports scholarship kids have to pay too. If they are really poor, they may qualify for Pell grants or some state grants, which of course would increase their taxable scholarship amounts but would also be real cash to pay the IRS. They’d get their personal exemption (if no parent to take it) and standard deduction, and pay taxes on anything above those amounts.
Just curious why you, OP, are paying the taxes that your son owes? If my 21 year old were pulling in that much money as a student and I had to pay the taxes, I’d be bitter too! Like you said, he’s made “really big bucks”. It’s a good opportunity for him to realize that while everyone works hard for their money, the government is going to get their share one way or another.
@hoosiermom, yeah, that’s a good point. He has always paid his own taxes out of his scholarships – every year so far. And he pays estimated taxes out of his scholarship funds each quarter for years. But, I just feel really bad about this year because his taxes are super high based on my income this year, which is atypically high because of the fluke Equity Distribution that I was given. And he’s paying at my rates. So, it just seems so unfair to me that he should have to pay the entire thing himself. It was my unfortunate situation that got him into this mess.
Also, he’s going to grad school next year and financial packages haven’t come out yet for that. He might well need the money that he’s been diligently saving to get through grad school!
I’m going back and forth and back and forth as to who is going to pay what. Back and forth to myself, that is – I haven’t taken him on this roller coaster, other than to explain this year’s peculiarities and to inform him that his bill is going to be super high this year. He knows that he may have to pay it all, but he also knows that I might split the difference with him. He doesn’t yet know that I may well pay the whole thing.
My justification for paying anything at all? This “kid” has paid his own way through college for four years. This isn’t his first year with massive scholarships. It’s just his first year that he’s had to pay such a huge tax bill at my rates. I’ve paid for some “special stuff” over the years – part of a couple study abroads and the like, basically out of a sense of gratitude for his goodness and his good fortune, but he’s paid for just about everything else himself.
If I pay any of this for him, it will be because I got off really easy with this one. He has been a saint. He works super hard and earns all kinds of accolades. And in the end, his parent has paid relatively nothing towards his education. There’s something about asking this hard-working, humble, good kid to pay my tax rates that feels really sad to me. It just doesn’t seem fair. It feels selfish and greedy. So if I pay, it will be out of a sense of gratitude – gratitude to my son, and gratitude to others who have chosen to pay his way. I want to do my part. Know what I mean?
@3scoutsmom, I am going to take your suggestion. Don’t know why I didn’t think of it myself. Thanks! But I think I’ll file his taxes first, with those big ol’ Turbo Tax numbers, and THEN hire somebody else to take a look at them for us. You see, FAFSA’s for grad school have us pressed for time. Gotta get those in by the deadlines for next year’s scholarships and grants! And it probably makes more sense to pay more money now, and get a possible refund later, than to pay less now and face possible penalties and interest later. This is so stressful. I feel sick about it. I have no problem paying “the man,” but there’s something about this situation that just feels wrong.
You’re not alone, if it helps. I had counted on including a bit more of my son’s awards in his taxable income, so we could claim the full AOTC, and that will still help a little (the $4000 in extra income would have to be taxed at over 50% to cancel out the $2500 credit), but he’s going to have a big tax bill too - which we will pay, since all of his money, including his earned income (just a little less than the standard deduction) goes for school and living expenses. The extra taxes will be more than the tiny Pell grant he gets. The government giveth, and the government taketh away.
^ Hahaa. You’re absolutely right. Thanks for commiserating, @Sweetbeet! (love the name)
In my case, the government taketh, and the government taketh a lot more!
Sweetbeat, I think you are doing something wrong if your child qualifies for a Pell grant, you are in a 50% tax bracket (really? I didn’t think anyone was in that bracket) and you can’t qualify for the AOTC.
You misread Sweetbeet’s post.
We are in a similar situation. D’s tax bill is higher then her earned income from the past year.
Yep. My son’s tax bill turned out to be about 7 times his earned income.
My daughter has 0 earned income. The irony is that if she had spent the summer working instead of doing research at the University, her tax bill would have been much lower!
@Sweetbeet The first $2000 for the AOTC is dollar for dollar but the second $2000 only yields $250 in credits. We only pushed $2000 in taxable income to our son. It really wasn’t worth it to give him the entire $4000 because then we had to deal with the kiddie tax. We still have to do the form because of his unearned income but since his income was below $6200 we didn’t have to calculate the tax.
The 2nd $2000 yields $500 in credit.
This is very hard to follow, but truly, thanks for posting because I will have questions when I go see the accountant next week. I am unaffected this year because, as a freshman with just one semester’s worth of bills, dd is unde r the threshold, but I will need to do some planning for next year.
Let me see if I’ve got this, only ONE of us (either her OR me) is going to be paying the taxes on the scholarship amounts above QEE. If I file the 8615, she doesn’t?
@annoyingdad. Whoops. You are correct.
You can’t report her taxable scholarships or the 8615 on your return. Only investment income can be reported on a parents return. This is unearned income for the purpose of the 8615, but not investment income. Also, confusing as it is, taxable scholarships are earned income for the purpose of filing requirements and the standard deduction.
Bah! So glad I have a CPA do my taxes. His firm will pay penalties on any screw ups.