Lion EA Posted April 17, 2016 Report Share Posted April 17, 2016 I always struggle with the education credits, and just haven't had this situation lately, or maybe at all. Single mom, daughter graduated 2015, still mom's dependent, but all the big stuff was paid December 2014. In the past, mom had education expenses. 1098-T in daughter's SSN with $5,000 scholarship. Transaction history from U. states that no tuition paid during 2015, that some loan funds arrived at school, and the $5,000 scholarship. So, $5,000 taxable to daughter? Where on return? She can't use books, fees, living expenses, food, against any of it, no? Mom had increased her withholding as we planned for no education benefits, but she still owes. Just starting daughter's returns. She got a full-time job, but that extra $5,000 is going to hurt. They've gone from single mom raising daughter who always got refunds with a daughter who worked through HS and college and got refunds to a couple of women who both are going to owe, even after increasing mom's w/h by $100/paycheck to plan for last year. Dad was my manager at HRB, my mentor, and a big brother figure to me; passed away when daughter was seven. So, I'm taking this one personally. Lost $2,500 in education credits but increased w/h $2,600, and who knew daughter would find work so fast. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 Part II: Daughter started repaying her student loan during 2015 when she was still a dependent. She can't take that adjustment, correct? Can mom take the student loan interest with the 1098-E in daughter's name and SSN? (Told you I'm vague about all this. Most of my clients are older with very grown kids, not recent grads.) Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 Is daughter going to owe Kiddie Tax on the $5,000 because it's not earned income?! Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted April 17, 2016 Report Share Posted April 17, 2016 I'm going to attempt to weave thru this with the hope that it helps. >>>>So, $5,000 taxable to daughter? Where on return?<<<<< The 5,000.00 if taxable goes on line 7. Did the daughter receive cash for the balance of the scholarship??? >>>>1098-T in daughter's SSN with $5,000 scholarship<<<<<< Was any of the scholarship withdrawn for personal use? Can this be used against the student loan? It would be helpful to know what the details of the scholarship were or was this a government grant? >>>>She can't use books, fees, living expenses, food, against any of it, no?<<<<< books, fees (yes) housing, food (No) >>>>Daughter started repaying her student loan during 2015 when she was still a dependent. She can't take that adjustment, correct?<<<<< What is the adjustment?? >>>>Can mom take the student loan interest with the 1098-E in daughter's name and SSN?<<<<< Yes, if she claims the dependency You might want to take some time and play with the dependency to see where and who benefits the most. Maybe one could be used to help pay the other. Just a thought. I can't comment on the kiddie tax question as I don't know all of the particulars with the daughter's return. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 17, 2016 Report Share Posted April 17, 2016 Kiddie tax the way I understand it it applies to investment income, not scholarships or grants. Although scholarships are technically earned income, they are reported on line 7 as wages as if they were earned income, so no they are not subject to kiddie tax. 1 Quote Link to comment Share on other sites More sharing options...
GraceNY Posted April 17, 2016 Report Share Posted April 17, 2016 Kiddie Tax applies to unearned income. Scholarships are considered unearned income for purposes of Kiddie Tax (see F-8615 instructions). Student Loan Interest: in order to take student loan interest deduction, the 1098E must be in the name and SSN of the person who paid it. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 1098-E in name of daughter, daughter paid it, but daughter is a dependent and cannot deduct it. Is it lost? Can mom deduct? 1098-T is in daughter's name, tuition was paid prior year 2014 for 2015, only possible expenses during 2015 are books and some utilities toward off-campus housing, room was paid in 2014 for 2015, board/food was paid monthly during 2015. So, maybe $900 in expenses against $5,000 scholarship. But, still a dependent. (Mom earned 5X daughter, owns house the two live in, daughter had temporary housing on and then off campus paid semester by semester, daughter paid close to half of college considering her student loan and scholarships, but not even close to half when considering home, car, medical insurance premiums, clothes, family trips, etc., that mom paid. Daughter will be independent for 2016 with her higher full year income.) I'm calling mom now. It doesn't look like, from the transactions provided by URI, that it was distributed to the daughter to use for her living expenses. If I find it was retained by the U to use against her 2015 tuitions that was paid in 2014, maybe because they were expecting it..., then I can zero it out with tuition? Again, due to dependent status, daughter can take now of these benefits. But, daughter will take any excess scholarship on line 7. And, mom can or cannot take student loan interest that daughter paid? I was trying to prepare a couple of easy returns last minute. First I tried lives in a state that requires DL and she discovered hers expired over a year ago and wants an extension until she can take her driver's test !! Now this mother daughter who's been easy, because the mother is so organized even with multiple investment accounts and education benefits. But, it was graduation year, and it all looks different to me! Help! And, huge thank yous. Quote Link to comment Share on other sites More sharing options...
GraceNY Posted April 17, 2016 Report Share Posted April 17, 2016 1098E in daughter's name/SSN and daughter paid. Daughter is dependent of Mom. Deduction is lost. Unlike college Ed credits, student loan interest is only deductible by the person who paid it and who's name and SSN appears on 1098E. Must be one and the same. I just had a similar situation wherein 2015 1098T only shows scholarship. Qualified tuition and fees were billed in December 2015 and scholarship was applied in January 2016. Fortunately , in my case, the payments made in December did not fully cover the entire cost of the qualified tuition and fees so the scholarship applied in January 2016 is not taxable. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 Any wiggle room on 1098E if mom had to cosign? You summed up nicely what I was trying to put together from lots of info. Thank you, Grace, and everyone who's helped, today and all season, all year long. If , as I suspect, the scholarship was retained by URI to cover tuition, then I make it zero out on mom's (daughter's?) return? If excess scholarship, just report on daughter's return, deduct her smallish 2015 expenses against it, and excess to line 7, right? (Waiting for mom to call back. Thought we were so good with transaction report from URI, but no!) Quote Link to comment Share on other sites More sharing options...
GraceNY Posted April 17, 2016 Report Share Posted April 17, 2016 1 hour ago, Lion EA said: Any wiggle room on 1098E if mom had to cosign? You summed up nicely what I was trying to put together from lots of info. Thank you, Grace, and everyone who's helped, today and all season, all year long. If , as I suspect, the scholarship was retained by URI to cover tuition, then I make it zero out on mom's (daughter's?) return? If excess scholarship, just report on daughter's return, deduct her smallish 2015 expenses against it, and excess to line 7, right? (Waiting for mom to call back. Thought we were so good with transaction report from URI, but no!) "Any wiggle rom on 1098E if mom cosigned?" Not likely, still goes back to name and SSN on 1098E and who actually paid it. And, don't forget about the document matching folks. 1098E under one SSN and deducted under a different SSN. If the scholarship was retained by URI to cover tuition and fees, then it would not be subject to taxation on daughter's return. If excess scholarship, report on daughter's return, line 7 with notation "SCH" next to it. Depending on the dollar amount, she might not be taxed at all as her standard deduction could wipe it out on the federal (not sure about your state. .NY has a low threshold of $3,000). No personal exemption if claimed on mom's return. Still have to consider Kiddie Tax, if applicable, on mom's return. Not sure what education-related deductions/credits you are considering. Tuition and Fees deduction is similar to Student Loan interest. Who paid is the one who claims. And, only qualified tuition and fees are included. No books, etc. AOC has some rules about age and dependency. LLC is a possibility. However, if standard deduction wipes out taxable income, then credits are useless. 2 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 Thank you, Grace. Student loan interest is lost, but that's small as repayment was deferred until late in 2015. Between looking at URI transactions from them and talking with mom, there really is NOT excess scholarship. It was a state of RI scholarship. When URI billed tuition in 2014 for 2015, they excluded the $5,000 they expected from the state from the amount mom had to pay by 31 December. Then, in 2015 the RI money arrived at URI and was retained by URI to cover the last $5,000 that had been billed in 2014. I REALLY HATE THESE FORMS. 3 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 Pushed Enter while I was still typing.... At least, the URI "transactions" showed them retaining the $5,000, not distributing it to the student or mom, so that helps with the paper trail. So, the potential $5,000 income goes away. I hope. I know they'll get a letter, and I'll have to explain this coherently a year from now. I think I have my head wrapped around it. And, think I have the data entry straight. Mom gets no education benefits, but we'd discussed this last year and she'd increased w/h, just not enough. Daughter has no income nor deductions relating to URI. And, daughter has a full-time job near mom and everyone is living happily ever after. Mom increased w/h again due to losing daughter as a dependent for 2016. 1 Quote Link to comment Share on other sites More sharing options...
GraceNY Posted April 17, 2016 Report Share Posted April 17, 2016 Yeah, these forms are useless. My understanding is that institutions are now going to have to report in box 1 (payments). I still don't think that's going to resolve much. We'll still have the tuition billed in December and Scholarships, etc. appearing on the January statement. Still a mismatch that will have to be reconciled. 2 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 17, 2016 Author Report Share Posted April 17, 2016 As long as there is a disconnect between tax/calendar year and school year, we will have matching issues. Stupid. At least this client does have a paper trail. And, I have copies of everything as well as the mother/daughter having their originals back. All printed and ready for delivery/signatures/e-filing. Then on to extensions. 1 Quote Link to comment Share on other sites More sharing options...
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