Taxes and 1098-T and payments not lining up

<p>Hi all, I have a tax question.</p>

<p>My D is a freshman. Her school bills for spring tuition in December and it is due in January. When I called the school, they told me that spring tuition expenses would show up on the 2011 1098-T but the scholarships/grants would depend on when they were actually disbursed. Based on how fall went, we guessed they would be disbursed in January or February.</p>

<p>So, we thought the scholarship income would show up in 2012, and projecting ahead to senior year, we expected for that spring to have a 1098-T to show just scholarship income and no expenses. So we thought that we should pay spring tuition each year in January and “save” the relevant (spring) expenses from the 1098T each year for the next year’s tax return. But, scholarships were actually disbursed in December, but we didn’t know (it happened after the Dec bursar statement came out) so we still paid in January, and now we are a bit misaligned. </p>

<p>To use some round numbers, let’s say our D has 20K/semester in QEE and 13K in scholarship income, and we pay 7K in cash. So 2011 1098T shows both fall and spring: 40K in QEE and 26K in income. We still only paid 7K in 2011 though. At first I thought we were screwed because we would want to “save” the associated QEE for 2012 but would probably not be allowed to report the actual scholarship income disbursed this year in a different year. But now I think that since we don’t have an issue with QEE/aid not lining up, we don’t have to “save” anything, and we can just use the numbers on the 1098T as is. They show clearly non-taxable scholarship income, and still leave us plenty of room to use our 7K to get the full AOC. </p>

<p>The only issue I can think of is this: Spring of senior year, we will make a payment in a year when we will show no QEE and no aid. But we will have taken the AOC 4 times already. But… will we lose out on the possibility of taking the lifetime learning credit by not having any QEE in that 5th year of paying college expenses? Is there any way to “save” QEE for that year without having taxable scholarship income this year and losing out on the AOC?</p>

<p>Thanks in advance!</p>

<p>FYI....AOC is only approved through tax year 2012. Unless Congress takes action to renew it, it will expire after this year.</p>

<p>Here's an earlier thread about schools splitting tuition charges and scholarships/grants on the 1098:</p>

<p><a href="http://talk.collegeconfidential.com/financial-aid-scholarships/1251995-year-end-tax-planning-parents-freshman.html?highlight=1098%5B/url%5D"&gt;http://talk.collegeconfidential.com/financial-aid-scholarships/1251995-year-end-tax-planning-parents-freshman.html?highlight=1098&lt;/a&gt;&lt;/p>

<p>I have scoured this site for everything related to 1098s and taxes and am still confused.</p>

<p>We have a similar situation where school billed for Spring semester in December. They credited all grant and scholarship money to the account in December. With the 2 semesters added together the "free money" exceeds qualified the tuition and fees by about $5000. Combined with work study and summer job income it puts S over the $5800 exemption. </p>

<p>The loan amount was not credited until January. We paid our portion in January as well. How should I handle this? Can I move any amounts from one tax year to the other? How will it impact 2012 taxes?</p>

<p>What I did after thoroughly researching it last year: D's grant was more than the qualified expenses her freshman year (last year). The 1098T was for fall 2010/Spring 2011. Last year, I only reported 1/2 of the scholarships/grant and 1/2 of the qualified expenses. This year, I reported the 1/2 left over from last year's 1098-T (spring 2011 and 1/2 from this year's 1098T (fall 2011). Half of this years 1098 T will go on next year's return....</p>

<p>In order to take a tax credit, I attributed 4K of the grant for room and board and therefore taxable to D. In addition, the money over the qualified expenses was taxable to D. Therefore, D had work + 4K of her grant (so we could get the tax credit) + the difference between the grant and qualified expenses on her taxes. Yes, she owed money as it put her over $5800, but it was less than the tax credit. I reimbursed her for the taxes she owed and whatever she taxes she would have refunded if not for the 4K of her grant money put on her taxes so that I could get a credit. </p>

<p>This year, with similar accounting, I will owe her about a $500 tax refund.</p>

<p>After reading through these 1098T threads over and over the past week I think I have finally decided what we are going to do. My son has a full ride and when he 1098T came it had QEE for both Fall 2011 and SPring 2012 on it, but only part of the scholarships. So, looking at it you would think we ended up paying $4000 in QEE. We did not, in fact we have not paid for anything besides a school meal plan which doesn't factor into the equation at all. The school also did not put in outside scholarships that he had and is currently receiving. Of course people I have talked to said not to include those as income, but I know you are supposed to even if they are not listed. We have decided to keep our own records and used only the amount of QEE and scholarships/grants for 2011 and then next year when we file we will use the amounts for Spring 2012 and Fall 2012, ignoring what the school includes for Spring 2013 on the next 1098T. I have all our papers and keep good records so I don't see any problem with this. After all is said and done my son's QEE for Fall 2011 are $13277 and his scholarships are $ 18510. There we get no AOC (obviously) and he will have $5233 in income to claim on his taxes. I know this is below the amount required for him to file, but we will make him file anyways just to help the IRS see we are actually reporting these extra scholarships, etc.. Hope this makes sense to everyone, and if anyone thinks we are screwing something up please let me know.</p>

<p>And I forgot to add he will also file state taxes on that amount since he IS required to do that.</p>

<p>People, please take the 1098Ts and rip them up. They are NOT for you. They are from the school to the IRS. Your copy is only so you can check on the school. It reports what was BILLED and NOT what you PAID. What you paid (and in what year you paid it) is what you need for your taxes. You should not be blindly entering information from this form into your individual tax forms. It is a 1098 not a 1099 so you don't even file it with your tax returns. So ignore the 1098Ts! What you need is your school's statements or receipts which will show amounts actually PAID and when. And don't forget to report imputed income (scholarships that paid for room/board). If you've done things wrong in past years you'll need to file an amended return for those years.</p>

<p>mrego, that is pretty much what I can concluded. But there is so much contradictory information in these threads that it does get confusing. And when you have a freshman and have never seen/done any of this before it makes it more difficult. I'm looking forward to next year when my second starts college and the nightmare starts all over again. lol</p>

<p>becksgirl - do not forget to subtract the amount paid in 2011 for required BOOKS, materials and supplies. Amounts from a scholarship/grant spent for such things are not included in taxable income. It's not included on the 1098T, since the school of course has no idea how much was spent on books. But it IS a qualified educational expense. This should reduce your son's 2011 "income" by $500-$800, depending on how expensive his books were. </p>

<p>From Pub. 970, chapter 1:

[quote]
Qualified education expenses. For purposes of tax-free scholarships and fellowships, these are expenses for:
Tuition and fees required to enroll at or attend an
eligible educational institution, and
Course-related expenses, such as fees, books, supplies,
and equipment that are required for the courses
at the eligible educational institution. These items must be required of all students in your course of instruction.
However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.

[/quote]
</p>

<p>Agree with mrego that the 1098T is pretty useless. You need to rely on your OWN records of what you paid in each calendar year, including required course books and materials.</p>

<p>Schools aren't even required to furnish a 1098T if scholarships exceed qualified expenses(the ones they know about). My son's school furnished one last year in that scenario but has changed their policy this year not to. It seems the sole purpose really is for the credits/deductions, but they still may not line up with what was credited and paid in the tax year. I think the box 7 check box is to alert the IRS that amounts on the 1098T may not line up with what the tax payer claims on their tax return. It would be a lot more reliable, I think, if schools were required to put an amount in box 1 and box 2 didn't exist. Fortunately for me, my son's school puts room and board on the bill in December, but qualified expenses are put on the bill in January and payments are due in February.</p>

<p>MomCat2, I had already included the books in his QEE, but thanks anyways! :)</p>

<p>Oops, guess I read your post too quickly!</p>

<p>Oh, well, maybe the info will help someone else...</p>