<p>Greetings:
I have two issues. Son (freshman) has a 1098-T with:
box2: $20,000 (billed)
box5 : $26,000 (merit-based scholarships)
box 7 is checked indicating they billed for early 2011
We pay the residual difference from room/board not covered by scholarships.</p>
<p>The school is including early 2011 term on the 2010 1098-T, we’ve neither made payments on the residuals nor have scholarships for these until 2011. To me it makes sense to report what you paid in 2010 meaning these two boxes 2 & 5 should be half. Do I enter the actual 1098-T numbers or divide everything by two? If so, do I uncheck box 7 to now indicate this is for Fall 2010 only?</p>
<p>Daughter has similar financial package, where full tuition + much of room/board is covered.</p>
<p>So in both cases, they have taxable income and not much room for educational credits for us.</p>
<p>Call me greedy, but I’ve read (CPA Journal) that if you elect not to use all of the eligible tuition costs (say $15000 instead of $20000) that will inflate the child’s taxable income on their 1040 but the parents can use the difference of $5000 towards the Hope or other credits. I ran differing numbers in Taxact and it seems too good to be true. Of course the kids will be liable for some Fed and State tax but their deduction will cover some of that and we would of course pay that. Is this a good strategy or am I gunning for an audit? I’m just a simple single-income molecular biologist and reading through pub970 is not helpful. </p>
<p>The scholarships for both are all merit based with no earmarks toward tuition.</p>
<p>You should separate the 2010 money from the 2011 money in that 2010 1098-T. That way you can use the 2010 money on your 2010 taxes and the 2011 money on the 2011 taxes. Usually that is more advantageous.</p>
<p>Just because the form arrived now does not mean it all has to be used for 2010. Everyone knows that those figures often include money for the following tax year. If you split it up, it won’t be a problem.</p>
<p>There are several threads on this topic in the Financial Aid Forum. One has a title along the lines of “College messing with 1098 figures”. If you look for those threads, you will find a lot of useful information.</p>
<p>Yes, you’re on the right track and it is perfectly acceptable to throw the 1098 out the window and use actual figures for the tax year. Most people have to do that since colleges persist in using the academic year method. Since they’re still dependents, it sounds like you can elect to treat some of the scholarship money as paying all non-qualified expenses, file their taxes accordingly, and elect to treat your contributions as having paid tuition, fees, and/or books in order to maximize your AO credit.</p>
<p>Thanks to both of you! With an increased return maybe I can afford gas! I’ll look through more of the 1098 threads, from what I’ve read even the CPA types complain about how the schools and IRS don’t seem to mesh well.</p>
<p>What I’ve been told is when the amount of scholarship (box 5) exceeds the tuition billed, the student (or parent) does not qualify for education credits. I will defer to an expert, however.</p>