Tax Questions

[mom31257]

I want to file estimated tax numbers but I have no idea how college is going to affect it.

 

Our dd received a full tuition scholarship, so we've only had expenses for books, fees, and room/board. She received Pell Grant money, too. Will those grants/scholarships count as income? 

 

Will we be able to deduct any of these costs? What about books we rented or purchased outside of the school (Amazon)? 

 

She did attend a summer program, which we paid fully for, that was 6 hours of credit. The total program was $950 but included all the costs, even room and board. 

 

I normally do our own taxes using TaxAct.com. Would it be worth it to start going to someone more knowledgeable?

 

Thanks! 

 

[JanetC]

I have not yet filed for a student who is in college, but generally speaking, college financial aid apps are due before all your tax information comes in the mail. DD's are due Feb 1st.

 

This means filing with estimated numbers then correcting. I personally would use tax software for the estimated numbers (usually there are lots of help screens that explain what expenses can go in what categories), but maybe hire someone later to do the real numbers?

 

This way, you get the forms in on time, but you have someone check over your legal tax bill with real rather than estimated numbers.

[Gwen in VA]

Make sure she has kept receipts for books. When the scholarship income is more than tuition, the excess above tuition is taxable, but some student-related expenses such as books can be deducted.

 

Taxes and scholarships are a pain in the neck, but I'd rather deal with that pain than having to write a check to the college!

[Kareni]

 

Our dd received a full tuition scholarship, so we've only had expenses for books, fees, and room/board. She received Pell Grant money, too. Will those grants/scholarships count as income? 

 

I posted this some time ago, so things may have changed (i.e., the IRS Publication may have been updated).

 

IRS Publication 970 "Tax Benefits for Education" discusses this. Scholarship income that is not used for tuition, books, or some fees is taxable.

 

See page 6 of 88 of Publication 970. There it says,

 

"Form 1040A.

 

If you file Form 1040A, include the taxable

amount in the total on line 7. If the taxable amount was not

reported on Form W-2, also enter “SCH†and the taxable

amount in the space to the left of line 7."

 

Different directions are given for the various tax forms (such as 1040EZ, 1040, etc.).

 

Regards,

Kareni

[G5052]

It depends on your tolerance for wading through the details. I'm not familiar with TaxAct.com, but it's pretty easy in Turbotax. Turbotax asks you if you have a college student and then goes through the various scenarios with scholarships, grants, book expenses, etc. You'll receive a form(s) from the college in January that have the numbers you need. I also kept receipts for books that we bought separately.

 

I'm partially self-employed, doing work as an independent contractor, and I find the college tax issues to be easier than the self-employment issues even after years of handling that part of our taxes.

 

That said, this year we're hiring someone and have already met with her. We have other issues that are beyond me and need ongoing advice. Otherwise I'd just keep doing the taxes myself!

[DebbS]

Usually if the scholarship goes right to the college rather than directly to the student, you don't have to report it as income. So, what you can report are your out of pocket college expenses such as books and the courses taken over the summer.

 

TaxAct allows you to select with kind of deduction you want to use for the college expenses.There are three possibilities. TaxAct will default to one of them automatically, but you can select each of the others to compare how they affect your bottom line and maybe more importantly for federal grants, your adjusted gross income.

[MerryAtHope]

You really have some options here, so you'll want to check them out. Read Publication 970, Tax Benefits for Education.

 

Even if the money went right to the school, you have the option of whether to count it as income or not. If you count it as income, then you may be able to claim the expenses for tuition, for example. (If the full-ride scholarship stipulates that it can *only* cover tuition, then you would not claim it as income and wouldn't claim the expenses for tuition. With the Pell Grant, you definitely have the option, because that money can be used for tuition, books, or room and board. If you claim it as income and also claim expenses, then you are saying that you spent the Pell Grant money for room and board, and spent other money that you earned for books, supplies etc... In that case, you can claim the expenses for those educational items or tuition). This may or may not be to your benefit. Sometimes you have to work out the various possibilities to see. If you don't count the grants or scholarships as income, then you have to assume that those monies covered tuition (and if the Pell Grant covered books and you aren't claiming it as income, then you can't claim the expenses for the books). 

 

Publication 970 lays it all out clearly with various scenarios. 

 

It's easy to put the info into TaxAct, but I find it's easier to understand the implications of various choices if I read up on it first. 

 

HTH some! 

[mom31257]

Thanks! I will read the publication. The scholarship was from the school (merit awarded automatically based on ACT score) and only covered the tuition. The Pell Grant was not enough to cover the rest (room, board, fees, and books), so we paid the balance.

[Pegasus]

I want to emphasize a few points for clarity:

 

1. The IRS doesn't care if the scholarship went directly to the school or was a check made out to you.  They only care about which expenses the scholarship was applied to.

 

2. Scholarships used for "eligible expenses" are not taxed as income.  These expenses are spelled out in the IRS publication linked in the PP but generally include tuition/fees and required textbooks/supplies.  It doesn't matter where you buy the textbooks/supplies. If they are required by the courses taken, they are eligible expenses.

 

3. Scholarships used for expenses that are not listed as "eligible" are taxed as income ON THE STUDENT'S tax return.  These include room/board, transportation, etc. Folks often think that it should be included on the parent's tax return since they are the ones footing the bill.  

 

4. You can often CHOOSE how much of a scholarship to apply to eligible expenses.  This can be advantageous because the American Opportunity credit is generous ($2,000 credit for the first $2,000 in eligible expenses and $500 for the next $2000 in eligible expenses).  In other words, if you choose to count more of the scholarship as paying non-eligible expenses and thus including as taxable income on the student's return, the PARENT can count up to $4,000 of eligible expenses on their return and get $2,500 more as tax credits.  So, the student return includes the "income" from the scholarship and the parent return gets the "tax credit" from eligible expenses paid out-of-pocket.

 

5. TurboTax does a great job leading you through this in a simple interview type format. I haven't used TaxCut software so can't comment on that.

 

6. Did the summer program credit count towards a degree?  If so, part of the expense should be eligible. However, you would need to request a break-down of the total cost since it also includes non-eligible expenses.  If this cost can't be broken down to differentiate between eligible and non-eligible, I would either seek professional tax advice or just not try to get credit for it.  Seems like a fuzzy area.

 

7. Do keep good records and receipts. You won't send them in with your tax return but if the IRS ever comes back with questions, you will need documentation to support your returns.

 

 

[Pegasus]

You'll receive a form(s) from the college in January that have the numbers you need. 

 

The forms from the college are often incorrect. You should check it carefully and compare it to your own records.

[MarkT]

I want to file estimated tax numbers but I have no idea how college is going to affect it.

 

1) Our dd received a full tuition scholarship, so we've only had expenses for books, fees, and room/board. She received Pell Grant money, too. Will those grants/scholarships count as income? 

 

2) Will we be able to deduct any of these costs? What about books we rented or purchased outside of the school (Amazon)? 

 

3) She did attend a summer program, which we paid fully for, that was 6 hours of credit. The total program was $950 but included all the costs, even room and board. 

 

 

1)  no

 

2) see 3)

 

3)  I believe the educational expense has to be towards the pursuit of a degree or certificate to be deducted.

[G5052]

The forms from the college are often incorrect. You should check it carefully and compare it to your own records.

 

Yes, I was discussing this with a friend yesterday, and they indeed had problems repeatedly with a particular school. We've never had that problem personally.

 

FWIW, some years ago I used the Lifetime Learning credit to update my skills in a work-related area I had never studied before (web design, I'm a CSC/IT professor), and it all worked quite smoothly. I paid for three classes over three semesters where we got the tax credit, and then my department head at the time got the $ to pay for my certification review classes/books and the exams. The review classes and exams were of course not tax credits because they were employer-paid. Books were not covered under Lifetime Learning either, but it was still nice to have the tax credit for the tuition (9 credit hours total). That paid off long-term because I was able to move into teaching web design. Anyway, just in case someone reading this thread is curious about Lifetime Learning Credits.

[mom31257]

DD didn't have a job, so will she have to file taxes just because of the Pell Grant?

[mom31257]

Well, I think this is all going to be a mute point. I just did the estimator and it showed no Pell Grant money estimated to be paid to us. I made more money this past year, although we're no better off than we were. 

 

I sure wish they would take debts into account instead of just income. We are paying off a lot of medical bills (put on credit card) from when dh was laid off a couple of years ago. We both had to have 2 surgeries each that year, hit a deer, had our van's transmission go out, and paid tuition to school when dh took classes while he was laid off.

 

 

 

 

 

 

 

 

Edited January 1, 2016 by mom31257

[DebbS]

1)  no

 

2) see 3)

 

3)  I believe the educational expense has to be towards the pursuit of a degree or certificate to be deducted.

 

3) True for the AOC but not if you use the Tuition & Fees deduction (line 34 of the 1040). You can only use one or the other per student so you would have to determine which would give you the better return.  The Tuition and Fees deduction can be used for dual credit courses taken at a college even if the student is in high school so it's pretty useful for homeschool families.

[DebbS]

To get a better idea how to maximize your chances of getting a Pell grant you can use the following link to download a document with better explanations and worksheets that show you how the EFC is calculated. It's much more informative than the online calculators.

 

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0ahUKEwji4fvv5onKAhVK1WMKHZ-5CSYQFggmMAI&url=http%3A%2F%2Fifap.ed.gov%2Fefcformulaguide%2Fattachments%2F090214EFCFormulaGuide1516.pdf&usg=AFQjCNHjVrEorMOXAadR9tRbhjNghJfnhA