COLLEGE

[TAXMAN]

What I have here I am not sure what to do with. I have 18 year old in college. Received a scholarship from a business. Business issued a 1099 misc and put the amount in box 7. TP never worked for this business and will not correct the 1099. I am thinking show this on sch c ez the back out fully. Tuition clearly out ran this amount. Would you agree?

[Catherine]

The implication of the 1099 is that this may be a *taxable* scholarship.  The first thing to figure out, in connection with the business that issued it, is whether or not it is taxable.  

Once you do that, yes the best way to handle it would be C-EZ, back it out, and if taxable it ends up on Line 21.  Another way would simply be to put it on Line 21 to start with.  Then use Tuition & Fees to zero out the taxable income, or the non-refundable portion of AOC to zero out tax.  Or pay the tax and let parents take the full refundable credit if they qualify (and repay kid for tax paid).  

This is a scenario where you really have to have both tax returns in front of you to figure the best overall results for the family as a whole.  It would be foolishness to zero out a couple hundred bucks tax on the kid and have the parents lose $2,500 in credits.

[TAXMAN]

Thanks. Was the same way I was thinking looking at all possible ways to handle. Waiting on college billing stmts now to see what was paid and billed. Again thanks

[BulldogTom]

4 hours ago, Catherine said:

The implication of the 1099 is that this may be a *taxable* scholarship.  The first thing to figure out, in connection with the business that issued it, is whether or not it is taxable. 

At the risk of sounding stupid, please explain what a *taxable* scholarship is?  Aren't all scholarships taxable, unless they are used for educational purposes and therefore excluded from income by the code?  And aren't all amounts in excess of eligible expenses taxable, regardless of what the donating organization says? 

Is there another type of scholarship that is taxable regardless of whether it is used for qualified higher education expenses?  I really have never heard of it before.

Tom
Modesto, CA

[Catherine]

Scholarships by the school itself.  Scholarships by specialty donors or for specific purposes.  Of course, none of those ever exceed tuition charged...

[Catherine]

Or I could be completely suffering from pre-Thanksgiving distraction and not know which end is up.

[SaraEA]

Scholarships that aren't limited to tuition, fees, books, or given to a student who is not a degree candidate, are taxable.  So if an art lover is taking an art history course just to expand their knowledge, and they get a scholarship from an art museum, it's taxable.  If a scholarship covers room and board, that part is taxable.  I'm sure you've done so, but check out Pub 970 for further confusion.

[Catherine]

12 hours ago, SaraEA said:

check out Pub 970 for further confusion

That is just perfect!  How many times do we get further confused on reading the official instructions, after all?  

Back in my failure-analysis-engineering days, I had a sign in my office.  The last statement read, "But we think that we are confused at a higher level, and about more important things."

[Christian]

Surely y'all jest. IRS publications are so edifying and stultifying. Not to mention mesmerising. 

[Edsel]

Last week at a seminar, it was revealed that the "new" 1098-T now has a box showing amount PAID.  However, it still shows the amount BILLED.

Go figure.  These folks at colleges and universities are supposed to be super smart...