FAFSA - It asks if student is filing tax return. We file for her on ours (parents)What to say?

The FAFSA asks if the student will be filing a tax return. My daughter (the student) has dividend income of 2000+ so it has to be reported but my husband and I just take care of it on our tax return. She does not file her own. On that question, do I just answer ‘no’? If I answer ‘no’ there is no place to include her dividend income – though her investment assets are still listed. I don’t want it to seem as if I’m hiding her income but I don’t want to file a separate return for her.

Can you do that? If the dividend income account is in her name…how can you file that on your taxes?

Yes, IRS form 8814 “Parents’ Election To Report Child’s Interest and Dividends.” However,

thumper1 – you still put it in her name on your tax return. It’s just not a separate tax return. Thanks to 4kidsdad to0.

I’m just not sure if my putting her on mine means she’s not filing. She is kind of filing but on my return not her own. So the question FAFSA asks the student – ‘are you filing a tax return?’ I don’t know whether to say yes or no – or in their words ‘will file’ or ‘won’t file’. If I say ‘won’t file’ then they just go on and there is no place to put her income down. If I say yes – it asks 'what will be your tax filing status: ‘single, married, are you filing as ‘single’. ‘married’, married jointly’, etc which sounds more like a separate return. However it does include a ‘don’t know’ that you can choose for your tax filing status.

Do you live in a state without a state income tax?

Or

Does your state follow federal and allow child’s investment income to be reported on the parents’ return?

One more question: did your daughter work in 2014?

Madison85 – I live in California. No income tax and yes they do allow the child’s income to be reported on parents’ return. No my daughter did not work in 2014.

The answer is no, she is not filing a separate return. If she did, the FAFSA would ‘plus it in’ to confirm her earnings just like they will yours for the parent section.

However, you might consider if it is not only cheaper but easier for her to have her own return. Sometimes it’s easier to just provide the student’s tax return for scholarship apps or financial aid than to say she doesn’t have one and have to provide yours for her information. Just something to think about.

OP I think the answer to the question “are you filing a tax return?” will be no for your daughter, if you’ll file F8814.

twoinanddone – just to clarify – the FAFSA doesn’t use the word ‘separate’. Here is the exact question:

‘For 2014, have your parents completed their IRS income tax return or another tax return?’ She’s not filing a separate one but is she filing ‘another tax return’?

And thanks for the other info – I will think about it – sound like good idea

Sorry – this is the question I meant to copy:

“For 2014, have you completed your IRS income tax return or another tax return?”

If post #9 is referring to a question in the student section of fafsa, the answer is no, she hasn’t completed a tax return. Her dividend income being reported on your return doesn’t constitute another return that she has completed.

Personally, I would have her file her own return. It’s easier if verification is required and if she’s going to be working next summer and during college, now’s a good time to start. See post #2, it may be cheaper too.

annoyingdad - thanks for the info. I will go with ‘no’ then.

What if some sort of school-specific aid is based on parents’ AGI? You may be shooting yourself in the foot by including your child’s investment income on your return.

I agree with @annoyingdad and post #2 - have the child file separately, and taxes may be lower, too.

Madison85 – Her investment income is not counted as part of our income – it doesn’t raise our AGI. It’s just a way to account for the money and pay whatever tax might be owed on it without doing another form. The tax is so low now that what we might save by her doing her own filing would be eaten by the H and R Block online fees anyway.

Thanks!

Ahhh, the tax due on her investment income gets added to your tax liability, but her investment income isn’t in your AGI. Thanks for clarifying.

That your daughter has assets that are generating an income is more the issue if you as a family are applying for financial aid. 20% of HER assets will automatically go straight to her EFC. Only 5.6% of any of your assets AFTER your asset protection allowance is used (She gets no such protection) goes towards EFC. That can be a significant difference. The assets are reported as of the date you complete the FAFSA so I suggest considering some remibursement of parental expenses or opening a 520 or prepaying some future expenses or the amounts could reduce potential aid amounts.

I still don’t understand how this dividend income reported on your tax return will be reconciled to the student’s income on the FAFSA? If you use the irs retrieval tool will the info from form F8814 be put into the student’s income section?

*529 plan

mommdc, they won’t be able to use the DRT for the daughter, she won’t have filed a return. The dividend income has to be reported manually in the student section of the fafsa. If selected for verification they will have to complete the non-filers statement process for her. My daughter has filed the last two years, the first to declare a small amount of Coverdell distribution as taxable so we could get more for the AOC and once to get a small amount of withholding back. This year she had no withholding but she’s still going to file just so she can use the DRT and avoid the possible non-filers statement process. For the OP it seems it would have to be a 1040A because it’s dividend income but still not really a big deal.

cptofthehouse - Yes, ugh, I know about the 20% vs. 5.6% of the assets and financial aid. But I really can’t do a lot about it. The investments are stocks with a very low cost basis. Were I to convert to 529 wouldn’t I have to sell and invest in whatever that 529 invested in? The capital gains on the stocks would be large and probably negate any benefit to changing to 529. Plus this is an irrevocable trust set up by my father years ago with the yearly gifts under the amount where you had to pay gift tax – so those taxes would have to be resolved too. We have borrowed against the trust for her expenses to get the net worth down. But I don’t want to borrow too much and get the margin close to ever having a margin call on it. We hope to be able to pay for her college without using this trust so that she can have it later for a home down payment or something.