hopskipjump Posted July 27, 2016 Share Posted July 27, 2016 I still haven't had any luck finding a tax accountant for the upcoming year (finding someone who seems to have at least *some* experience with university expenses, figuring scholarships, etc into everything has proven far more tedious than I expected...) But - simple questions for those who have btdt, or who have a good idea of all of this---- as I try to sort which receipts we need to keep as we go along. Assume we are paying cash, no loans involved. (And these are overall minor quibbles in the grand scheme of $$ with taxes... But taxes alarm me and I want to have sort of a clue. Thinking I should go back to school & become an accountant myself!! 😄 As one day we will have three "dependents" in college... I'm hyperventilating at the insanity that is going to be!!! 😳) DDs book costs ARE tax deductible, yes? JUST textbooks? What about online access costs, etc? Or binders to hold loose leaf books? (DD likes the ones that are $15 a pop and I'm seeing that those add up quickly! lol) Room and board? No "supplies" are deductible unless they are purchased "on demand" specifically for a class or major requirement. Would that apply to things like lab coats, etc? Or only larger purchases like computers? Long shot question .... What about clothes purchased specifically for her sport? (Practice gear) That isn't covered by the school - but she buys it specifically for that purpose. Travel costs launching her from one corner of the country to another? I know it gets stickier when the scholarship funds get mixed into the equation... Hence my search for a guy who knows what he's talking about on an official level! lol But for now, just knowing which receipts & costs to keep extra close tabs on will help ease my mind. :) And you guys always know so much more than I do!!!! 💚💚 Quote Link to comment Share on other sites More sharing options...
NicksMama-Zack's Mama Too Posted July 27, 2016 Share Posted July 27, 2016 https://www.irs.gov/individuals/aotc Quote Link to comment Share on other sites More sharing options...
G5052 Posted July 27, 2016 Share Posted July 27, 2016 (edited) Yes, study the IRS link above and the various links from there. It's basically what you pay in tuition and fees plus books and supplies and equipment. Purchase of a laptop is an option if they are expected to check assignments online, email professors, etc. If you pay over $4000 for those categories, you only get a $2500 credit. The college will provide you with a Form 1098-T for tuition and fees. Most college bookstores are not owned by the college and many people buy books elsewhere, so they only include what you directly paid the college itself. If the amount listed on the 1098-T is below $2500, you can add in books, supplies, and equipment. There are some complexities with scholarships and room and board. Also note that what counts is when you pay it, not when they are in school. If you pay in December 2016 for January 2017, that counts as 2017. But if you pay in January 2017 for January 2017, that counts as 2017. My accountant was a single parent of four kids who went to college, so she answered all of my questions right away. Edited July 28, 2016 by G5052 Quote Link to comment Share on other sites More sharing options...
JanetC Posted July 27, 2016 Share Posted July 27, 2016 There are different tax credits and deductions, but you don't get to combine them. The best one is usually the American Opportunity Tax Credit, which only applies to tuition and only to the first 4000 you pay. But, the tax credit (not deduction) is 2500 unless your income is so high it phases out. This and all the other options are outlined in IRS Publication 970. Your scholarship may be taxable if it is not applied to required educational expenses. Again, read publication 970. Quote Link to comment Share on other sites More sharing options...
katilac Posted July 28, 2016 Share Posted July 28, 2016 A software program like Turbo Tax isn't that expensive and will ask you all of the pertinent questions. If you don't have any other complicating factors, sixty bucks and a few hours entering information will do you. 2 Quote Link to comment Share on other sites More sharing options...
hopskipjump Posted July 29, 2016 Author Share Posted July 29, 2016 Thanks for the links and IRS forms information! @katilac , unfortunately, our taxes are complicated in the first place. We currently do use Turbo Tax and it's served us well... but with being so unsure of what is "dds" and what is "ours," I really want an in-real-life person to walk me through it this first year. Hopefully, Turbo Tax and I can reunite the following year!!! :D 1 Quote Link to comment Share on other sites More sharing options...
Night Elf Posted July 29, 2016 Share Posted July 29, 2016 Also note that what counts is when you pay it, not when they are in school. If you pay in December 2016 for January 2017, that counts as 2017. But if you pay in January 2017 for January 2017, that counts as 2017 Do you mean if we pay in December 2016 for January 2017 that we count that expense on our 2016 taxes? 1 Quote Link to comment Share on other sites More sharing options...
G5052 Posted July 29, 2016 Share Posted July 29, 2016 Do you mean if we pay in December 2016 for January 2017 that we count that expense on our 2016 taxes? Yes, it's about when you pay it. We really needed the deduction last year, so I was careful to get it paid in December. Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted July 29, 2016 Share Posted July 29, 2016 (edited) We have not been able to find a tax acct that understands these issues as well as I do after reading CC answers to my questions and the IRS publications. How much scholarship $$ did your dd receive? It makes a big difference in what you are dealing with. If she received a full-tuition scholarship, for example, none of it is taxable and you don't have to report anything. If the amount exceeds tuition (and other QEE, but QEE are limited. A simple way to think about them are they include required textbooks and some fees. Not all fees are deductible. Room and board definitely is not. Travel is not.) the excess amt is taxable. The amt is reported on her taxes, not yours. The only place where you come into it is is for the tax rate. The amt beyond her personal deduction will be taxable at the parents' unearned income rate. (Turbo Tax will do all of this for you.) The amt is reported on form 8615 (read pub 970 and 553.) Students who participate in UG research like REUs will also find that that $$ is considered scholarship $$ and not income. After fall of freshman yr, students will have to pay quarterly taxes if the amt owed exceeds $1000. Edited July 29, 2016 by 8FillTheHeart Quote Link to comment Share on other sites More sharing options...
G5052 Posted July 29, 2016 Share Posted July 29, 2016 (edited) Thanks for the links and IRS forms information! @katilac , unfortunately, our taxes are complicated in the first place. We currently do use Turbo Tax and it's served us well... but with being so unsure of what is "dds" and what is "ours," I really want an in-real-life person to walk me through it this first year. Hopefully, Turbo Tax and I can reunite the following year!!! :D I've done our taxes for years even through self-employment, inheritances, dual enrollment, etc. etc. But when I started going over our 2015 info, I gave it up. And 2016 on is going to be even worse. We need someone who can give us tax advice in addition to doing our taxes, and we have that. She did our taxes for $300 and offers an in-office "sanity check" appointment in the fall for $150. I balked at first, but in the scheme of things, it's worth it. Edited July 29, 2016 by G5052 Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted July 29, 2016 Share Posted July 29, 2016 (edited) I've done our taxes for years even through self-employment, inheritances, dual enrollment, etc. etc. But when I started going over our 2015 info, I gave it up. And 2016 on is going to be even worse. We need someone who can give us tax advice in addition to doing our taxes, and we have that. She did our taxes for $300 and offers an in-office "sanity check" appointment in the fall for $150. I balked at first, but in the scheme of things, it's worth it. You are lucky to have found someone familiar with scholarships. This past year I called multiple offices and no one could answer my questions. None of the accts were familiar with taxes on REUs or scholarships exceeding tuition. It was incredibly frustrating. Edited July 29, 2016 by 8FillTheHeart Quote Link to comment Share on other sites More sharing options...
G5052 Posted July 29, 2016 Share Posted July 29, 2016 (edited) You are lucky to have found someone familiar with scholarships. This past year I called multiple offices and no one could answer my questions. None of the accts were familiar with taxes on REUs or scholarships exceeding tuition. It was incredibly frustrating. Yes, she's truly a gem and is the only one in our immediate area who is an IRS enrolled agent. The office is extremely well-run and responsive too. Some years back I consulted a local CPA on a complicated estate matter. Although I eventually got what I wanted, she had to research it. Her hourly rate is close to what our lawyer charges. When I interviewed the professional who is now our accountant, she immediately knew how to the handle the estate matter the CPA handled and also knew immediately how to address each of the issues I brought up. All of that in a 30-minute, free consultation to see if we wanted to use her for our taxes. Needless to say, I booked her to do our taxes right then and there! Edited July 29, 2016 by G5052 1 Quote Link to comment Share on other sites More sharing options...
hopskipjump Posted August 5, 2016 Author Share Posted August 5, 2016 How much scholarship $$ did your dd receive? It makes a big difference in what you are dealing with. If the amount exceeds tuition (and other QEE, but QEE are limited. A simple way to think about them are they include required textbooks and some fees. Not all fees are deductible. Room and board definitely is not. Travel is not.) the excess amt is taxable. The amt is reported on her taxes, not yours. The only place where you come into it is is for the tax rate. After fall of freshman yr, students will have to pay quarterly taxes if the amt owed exceeds $1000. Her scholarship exceeds the cost of tuition (she will actually be getting a small check for "overage" this year) and that's where the accountants I've spoken to get all flustered and uncertain. I'm sure they could figure it out, but I've been shocked at how (so far) none of them can answer relatively simple questions I have! I'll buy turbo tax as soon as it's out and play with it using a mix of last year's numbers (because I won't have all the current info yet) and her college information and see how secure I feel. It's really the mix of "her" taxes still somehow being linked to ours that I can't wrap my brain around. She had to file separately last year (because turbo tax told me she needed to), so how will "they" know what our/parent's tax rate is when we are filling out her taxes?! Gah, I feel so tax-stupid! 😖 And possible quarterly taxes??? Omg!!! For such a tiny amount owed? 😠Quote Link to comment Share on other sites More sharing options...
Paper In Fire Posted August 5, 2016 Share Posted August 5, 2016 Those tiny amounts add up though. I have little experience with this, but it sounds like Turbo Tax is more knowledgeable in this area than an old-fashioned professional. Quote Link to comment Share on other sites More sharing options...
Pegasus Posted August 5, 2016 Share Posted August 5, 2016 How much scholarship $$ did your dd receive? It makes a big difference in what you are dealing with. If she received a full-tuition scholarship, for example, none of it is taxable and you don't have to report anything. If the amount exceeds tuition (and other QEE, but QEE are limited. A simple way to think about them are they include required textbooks and some fees. Not all fees are deductible. Room and board definitely is not. Travel is not.) the excess amt is taxable. This is true. Keep in mind, however, that you can CHOOSE how much of the scholarships/grants are used for QEE and how much is used for non-QEE, as long as the grant/scholarship terms do not limit its use to only tuition/QEE. This is important for maximizing the AOTC that you can claim. In general, you want to claim $4,000 of QEE is paid out of pocket, to claim the full $2,500 AOTC. This is on the PARENTS tax forms. The student would need to then claim the scholarship funding not used on QEE as income on their tax forms. The other tricky part is that the grant/scholarship funding not used for QEE is counted as EARNED income in determining if the student must file taxes but UNEARNED income in determining how much tax is paid. The following guidance focuses on the Pell grant but is applicable to other grants/scholarships. I've found it very helpful: https://www.treasury.gov/connect/blog/Documents/Pell%20AOTC%204%20pager.pdf We use TurboTax and it walks us through the process. Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 5, 2016 Share Posted August 5, 2016 Her scholarship exceeds the cost of tuition (she will actually be getting a small check for "overage" this year) and that's where the accountants I've spoken to get all flustered and uncertain..... And possible quarterly taxes??? Omg!!! For such a tiny amount owed? 😠Tiny overage over tuition or COA. If it is just over tuition, she might no owe anything. If it is over COA (meaning that the $$ is left over after paying room and board), the amt owed might not be small. That tax rate is what depends on you. Approx 1/3 of our ds's non-tuition scholarship $$ goes toward taxes. Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 5, 2016 Share Posted August 5, 2016 This is true. Keep in mind, however, that you can CHOOSE how much of the scholarships/grants are used for QEE and how much is used for non-QEE, as long as the grant/scholarship terms do not limit its use to only tuition/QEE. This is important for maximizing the AOTC that you can claim. In general, you want to claim $4,000 of QEE is paid out of pocket, to claim the full $2,500 AOTC. This is on the PARENTS tax forms. The student would need to then claim the scholarship funding not used on QEE as income on their tax forms. The other tricky part is that the grant/scholarship funding not used for QEE is counted as EARNED income in determining if the student must file taxes but UNEARNED income in determining how much tax is paid. The following guidance focuses on the Pell grant but is applicable to other grants/scholarships. I've found it very helpful: https://www.treasury.gov/connect/blog/Documents/Pell%20AOTC%204%20pager.pdf We use TurboTax and it walks us through the process. Yes. We did this this past yr. I just didn't want to totally overwhelm her with info. We didn't do it the first yr bc dh was totally overwhelmed with the process. He did figure it out this past yr. Turbotax did not walk us through this process, however. How did you get it to trigger these questions? We went in and did it manually bc I knew we could from reading about the process on CC. Quote Link to comment Share on other sites More sharing options...
J-rap Posted August 5, 2016 Share Posted August 5, 2016 It's surprising to me that some of you are having difficulty finding a tax accountant who understands these things. It seems like college tuition/expenses is pretty basic stuff. (I don't doubt you, but it is surprising!) Colleges are required to either send out (or have available online) the 1098-T. That's a good place to start. Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 5, 2016 Share Posted August 5, 2016 (edited) It's surprising to me that some of you are having difficulty finding a tax accountant who understands these things. It seems like college tuition/expenses is pretty basic stuff. (I don't doubt you, but it is surprising!) Colleges are required to either send out (or have available online) the 1098-T. That's a good place to start.They aren't used to it. Students having large scholarships exceeding tax-free amts and their personal deduction is uncommon. Second, most people over the age 18 are legally allowed to claim independence if they are not being provided financial support. Not college students. Students cannot even pay taxes independent of their parents bc they have to know the tax rate they must pay bc everything is considered unearned income and taxed at the parents', not the student's, unearned income rate and is filed on form 8615 which is for the kiddie tax. I called several different accts last tax season and not one of them had any familiarity with scholarships exceeding tuition. Edited August 5, 2016 by 8FillTheHeart 1 Quote Link to comment Share on other sites More sharing options...
hopskipjump Posted August 5, 2016 Author Share Posted August 5, 2016 Tiny overage over tuition or COA. If it is just over tuition, she might no owe anything. If it is over COA (meaning that the $$ is left over after paying room and board), the amt owed might not be small. That tax rate is what depends on you. Approx 1/3 of our ds's non-tuition scholarship $$ goes toward taxes. 1/3?!?! 😳 Ugh!!!! Hers is an overage after COA. So a student who isn't working, but receives scholarship $ is somehow supposed to come up with thousands of cash-dollars in taxes each year?? It's all insane!! Gah! I'm going to pull up last year's turbo tax and start playing with it immediately after getting dd moved in. I had no idea it could be that much %. 😶 Quote Link to comment Share on other sites More sharing options...
hopskipjump Posted August 5, 2016 Author Share Posted August 5, 2016 Yes - to all of this!! We live in an area where 99.9% of the students go to college in-state. The state has horrible scholarships - usually about $3k for a top-tier student. Only über-rare circumstances warrant a full-tuition scholarship here. Therefore, apparently, the local tax people aren't well-versed on what to do when a student exceeds the tuition-only amount. Add in that DD is going out of state (so, this is OOS "income?") so I ask them how that works (does she have to file only in her home state, or also where the "income" is earned (although that state doesn't have income tax so far as I understand...) --- and their brains just kind of implode and they look helplessly at me and say they'll "figure it out." I want to pay someone who has btdt and can make sure we/dd aren't over-paying! Not to be someone's Guinea pig and pay them as they sort it out. :/ They aren't used to it. Students having large scholarships exceeding tax-free amts and their personal deduction is uncommon. Students cannot even pay taxes independent of their parents bc they have to know the tax rate they must pay bc everything is considered unearned income and taxed at the parents', not the student's, unearned income rate and is filed on form 8615 which is for the kiddie tax. I called several different accts last tax season and not one of them had any familiarity with scholarships exceeding tuition. Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 5, 2016 Share Posted August 5, 2016 1/3?!?! 😳 Ugh!!!! Hers is an overage after COA. So a student who isn't working, but receives scholarship $ is somehow supposed to come up with thousands of cash-dollars in taxes each year?? It's all insane!! Gah! I'm going to pull up last year's turbo tax and start playing with it immediately after getting dd moved in. I had no idea it could be that much %. 😶 I am glad we were somewhat prepared for the amount. We had to pay it and begin quarterly taxes. It was rough bc the amt I had allotted didn't include the quarterly amt. Quote Link to comment Share on other sites More sharing options...
Pegasus Posted August 5, 2016 Share Posted August 5, 2016 (edited) Don't panic yet. The dependent student won't have to file at all unless earned income is above $6300 (for 2015) or unearned income is over $1050 (for 2015). Grants/scholarships over QEE are considered earned income for determination of the need to file.Once the student needs to file, grants/scholarships used for non-QEE are subject to the kiddie tax rules. The first $1050 are not taxed. The next $1050 are taxed at the students tax rate. Only unearned income over $2100 is taxed at the parents highest income tax rate.In order for a student to lose one-third of the scholarship to taxes, the parents would need to be in one of the highest tax brackets, making well north of $200K per year. If this does not apply to you, the student's tax burden will be significantly less. edited to add the 2015 tax brackets (33% bracket shown in red): Married Filing Jointly Taxable Income -- Tax Rate $0 to $18,450 - 10% $18,451 to $74,900 -- $1,845.00 plus 15% of the amount over $18,450 $74,901 to $151,200 -- $10,312.50 plus 25% of the amount over $74,900 $151,201 to $230,450 -- $29,387.50 plus 28% of the amount over $151,200 $230,451 to $411,500 -- $51,577.50 plus 33% of the amount over $230,450 $411,501 to $464,850 -- $111,324.00 plus 35% of the amount over $411,500 $464,851 or more -- $129,996.50 plus 39.6% of the amount over $464,850 Edited August 5, 2016 by Pegasus 1 Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 5, 2016 Share Posted August 5, 2016 (edited) Don't panic yet. The dependent student won't have to file at all unless earned income is above $6300 (for 2015) or unearned income is over $1050 (for 2015). Grants/scholarships over QEE are considered earned income for determination of the need to file. Once the student needs to file, grants/scholarships used for non-QEE are subject to the kiddie tax rules. The first $1050 are not taxed. The next $1050 are taxed at the students tax rate. Only unearned income over $2100 is taxed at the parents highest income tax rate. In order for a student to lose one-third of the scholarship to taxes, the parents would need to be in one of the highest tax brackets, making well north of $200K per year. If this does not apply to you, the student's tax burden will be significantly less. Our income is not anywhere near that amt. After his deduction, his taxes on the remaining amt were close to 30% of the amt. I can't remember exactly, but it was high, significantly higher than his tax bracket would have been if he had been filing independently as earned income (which would have allowed for his personal deduction.) Edited August 6, 2016 by 8FillTheHeart Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 6, 2016 Share Posted August 6, 2016 (edited) They are taxed at your marginal tax rate, not your income tax rate. Here is a good article on how the kiddie tax is calculated: http://thismatter.com/money/tax/kiddie-tax.htm Here is a marginal tax rate calculator. https://www.dinkytown.net/java/TaxMargin.html Edited August 6, 2016 by 8FillTheHeart Quote Link to comment Share on other sites More sharing options...
hopskipjump Posted August 6, 2016 Author Share Posted August 6, 2016 Don't panic yet. Too late! 😂😂😂 Can't wait until we are back home and I can start looking at this directly. If it's a third of her scholarship $ (after tuition/books) - it is going to be several thousands of dollars every year that we aren't prepared for. So- I'm very much hoping that she'll fall into a different bracket. 😖 At least I'm getting it sorted out now, I guess! Quote Link to comment Share on other sites More sharing options...
JanetC Posted August 6, 2016 Share Posted August 6, 2016 They are taxed at your marginal tax rate, not your income tax rate. I thought last time this came up it was capital gains tax rate? Quote Link to comment Share on other sites More sharing options...
8filltheheart Posted August 6, 2016 Share Posted August 6, 2016 (edited) I thought last time this came up it was capital gains tax rate? I'm not an acct and I certainly do not know what I am talking about. The article I linked says the parents' highest marginal tax rate. ETA: we didn't calculate anything. We just put in the numbers and paid whatever it said. Edited August 6, 2016 by 8FillTheHeart Quote Link to comment Share on other sites More sharing options...
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