Taxes, grants, earned income, accountants, residency

<p>Yes, I have been reading many posts on the topic but I can not make it match my situation completely. I found out that my dtr will probably have to file a return in NY even though she is in MA in school, double ggrrrr! It is crazy that low income folks, like students, have to pay taxes in so many places, especially if they make less than 10,000, way below poverty level!
I wonder if it would be better if she was to establish residency where she is, since she does not want to return to NY, and eliminate this problem now. Or wait for graduation in two years?
Which means continuing returns for Federal, NY and MA.
I read here that folks are including the excess scholarship amount as wages in the student's return, but people at work and my own accountant last year did not include it in her taxes. Her college has been very generous and offered more than what the total tuition is. The 1098 last year read 34,994 in box 2 (tuition) and 37,834 in box 5(grants). The accountant did not count any amount as income for my daughter, If I would have done her taxes I probably would have. The accountant said that the money was not given to her personally, she never had possession of it, so he does not count it as income. The same thing happens this year, so I am confused! a coworker reported that her accountant does the same thing. If I would have done my own taxes as I always have, I would have done what everyone here is doing, deducting the tuition amount from the total grant and counting it as part of the wages. Since I had heard coworkers mentioning that their accountant do the taxes differently than what i would have, I decided to have my taxes done by a professional, with the same results my coworkers had, no excess was counted. Has anyone here experienced the same? What do they know that we don't?
Her school lumps direct and indirect costs in the "needs" when considering the grant amount and simply apply the grant to the total bill, it does not specify that the monies are been applied to tuition first,then room and board, it just gets applied to the total.</p>

<p>Everything I have seen says you must report that difference as income and since my DD is paying taxes on it do let me know if you find new rules :D</p>

<p>My accountant has reviewed the same forms and to be honest he was rather unfamiliar with it, but agreed it was income</p>

<p>As to the state, I don't know about NY/MA, but I do think your DD has to pick a state of residence and report her income on it. Therefore, pick whichever state is better and do everything needed to establish residency there!</p>

<p>I would be interested to know, if she is in university in MA, but a NY resident, does she have to file the MA return based on working there? What about the 1098T money? Is that 'earned' in MA or NY?</p>

<p>You need a new accountant. Seriously.</p>

<p>BTW, TurboTax does include it, they have you enter the info and they show it as income, so the automatic accountant includes 1098T excess as income</p>

<p>Re: taxes. One year my college aged son had to file state taxes in THREE different states because he worked in THREE separate states. It made absolutely NO difference in his residency. It was in THIS state. Many folks file returns as non-residents in states in which they don't reside.</p>

<p>thumper... lol! My son goes to school in Boston, had a summer job in RI, we moved from NJ to NC last year. I think he passed up a $1 refund by not filing in RI, but we had to draw the line somewhere!</p>

<p>"You need a new accountant. Seriously." Well, I am not the only one. My coworker's dtr never did, her accountant, I mean and she is now graduated and no audits. I guess if they audit the return, the tax company would be liable?</p>

<p>As for the 1098, I think you have to count it in all states mentioned. She only earned income working in the college, plus a Summer internship, all in MA, and will have to count it in both NY and MA. The tax company counted the same income in all three returns last year. Like I said, he said that the money was never in my dtr's hands, or bank accounts, so he is not considering it. I called him to ask why he did not and that was his answer. This is an establish tax company, and since my union gives some money towards the filing fee, I decided to try it for her first year of college. To me, if they are not going to offer more gov assistance to college bound students, at least they should not penalize them when they are offered assistance by the institution.</p>

I guess if they audit the return, the tax company would be liable?


<p> The taxpayer is liable for the taxes and any penalties and interest.</p>

<p>Your accountant is wrong, plain and simple. IRS Publication 970 is clear on the topic of taxable scholarships. You might want to suggest that your accountant reads it.</p>

<p>I think you only count the money earned in each state, so the 1098T money is deemed earned either in the state of the school or state of accountant says state of the school, which costs us more :(</p>

<p>I think every state has different rules. My daughter had an out of state summer job. It was in a State that does not have State income tax so I thought she was getting some money free of State incometax. But our State requires that residents report all income earned in or out of state. If she had paid income tax in another state she would have got a credit of some sort against her state taxes. But no tax savings. But at least we did not have to mess with 2 state returns.</p>

<p>Your accountant is wrong IVe, and if your daughter were ever audited she would be liable for interest and penalties. From IRS970:</p>

Tax-Free Scholarships and Fellowships
A scholarship or fellowship is tax free only if:
• You are a candidate for a degree at an eligible educational institution, and
• You use the scholarship or fellowship to pay qualified education expenses.
Candidate for a degree. You are a candidate for a degree if you:
1. Attend a primary or secondary school or are pursuing a degree at a college or university, or
2. Attend an accredited educational institution that is authorized to provide:
a. A program that is acceptable for full credit toward a bachelor’s or higher degree, or
b. A program of training to prepare students for gainful employment in a recognized occupation.
Eligible educational institution. An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.</p>

<p>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.
Expenses that do not qualify. Qualified education expenses do not include the cost of:
• Room and board,
• Travel,
• Research,

• Clerical help, or
• Equipment and other expenses that are not required
for enrollment in or attendance at an eligible educa-
tional institution. This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.


<p>I have read the publication, thank you, over and over.
My inquiry stems from my coworkers experience with tax professionals, and now mine. These tax people have been doing this for years. Have they just been extremely lucky and not confronted by the clients or IRS for not following the rule?
It is hard to believe that if you pay a professional and he makes an error that costs you, you have no legal recourse to recover your loss? Why pay anyone if they have no responsibility or accountability? I find it hard to believe that there is no "malpractice insurance" for this profession.</p>

<p>As for residency, I am not sure if she can choose a state, it looks as if she has to keep NY for now. I would also loose an exemption if she is a resident elsewhere, probably could not claim head of household in that case.
Thank you for all the input. I was hoping to find someone that had their taxes done professionally with the same results as we did(co workers and me), not really posting what the publication says. I see that most think that these professionals are wrong and just not gotten caught?</p>

<p>Yes, they are wrong. You'd have better luck using turbotax or another program like it. Some tax professionals are temporary (only work a few months near tax season) and poorly trained. Looks like you certainly got the latter!!! :(</p>

<p>Yes, we used a professional and yes, he included the income on my Dds return. Other kids used Turbo Tax and that included the income too.</p>

<p>Tax accountants are usually not aware of financial aid accounting, in terms of 'shaping' a profile for FAFSA or Profile, but I am surprised he would not know 1098T $ are taxable??</p>

<p>On the other hand, our accountant made a serious income error many years ago and we were held responsible by the IRS for the taxes and penalties generated, but we did negotiate with him to split it.</p>

<p>thank you anxious mom. the office I went to is opened year round, like H&R, it is an actual permanent, year round place. I will call him again, since he was supposed to investigate further after my call and call me back. They might have more experienced with business accounts, who knows?
any idea on the accountability issue, anyone?
I will check back tomorrow, need some zzzzs
thanks for all the input.</p>



<p>You are definitely gambling that you won't be audited. The chances of getting audited are very small. Sure, you'll be able to sue the tax preparer for negligence and malpractice. But in the end, you're responsible for your tax return when it comes to paying the IRS.</p>

As for residency, I am not sure if she can choose a state, it looks as if she has to keep NY for now.


<p>And this is ABSOLUTELY true. For undergrad college students, their state of residency is where their PARENTS live. AND they usually cannot establish residency in the state where they attend college if their primary reason for being there is ATTENDING college.</p>

<p>If you are a candidate for a degree, then scholarship, fellowship, and grant income are not taxable as long as the funds are used for tuition, fees, books, supplies, or equipment.</p>

<p>I figured I could sue the tax preparer for the loss, at least in Small claims. I actually got audited twice in less than 5 years, due to my ex claiming my dtr in his returns. If the chances are small, I just got bad luck on this one. Now, the IRS is finally going after HIM!
The other problem I mentioned is that the school actually lumps the direct and indirect costs in their assessment for the grant. Based on both costs,they give her money. They initially apply it to the bill(which lumps tuition, fees and room and board) It does not apply the grant to tuition first and then the other costs. If I was to pay for the room and board in full, there would be a couple thou as credit, which they would apply to the next bill or refund to you. So, if I was to get that money, I could then reduce the books and supplies from it, as it stands, even though they gave the grant based on all costs (tuition, fees, r&r, travel, books, etc) The fact that they don't put those items in the bill makes the monies inaccessible to the indirect costs, unless it becomes a credit. If I leave the couple thou in the account as credit, it can eventually be applied to tuition in future years. You see the problem? The money was not spent, it was left in the account for the college to use later. Not all colleges do things this way, so those who do might make things a bit complicated. How can you count the left over money as income if it is left in as a credit? Anyway, it is not simple and this is what the tax preparer might have been assessing in his decission,the fact that it never was in the student's possession and can technically be used for tuition and fees the next year. Confusing enough? Thanks again for the input!</p>

<p>Hmmm. I'm a CPA and I haven't had a client with this situation. If I were confronted with it I would find out what is in box 2. Is it only tuition? Has the school picked up the other qualified expenses (books, required equipment, etc)? If the 1098 shows $10,000 in qualified expenses and $11,000 in grants, etc. however the student had required textbooks of $1,500 that the school failed to include in qualified expenses, I suspect there is nothing owed (I am not expert on this and would do a bit of research for a client).</p>

<p>Rather than worrying about suing the accountant if an error has been made, why don't you just pick up the phone and ask why they treated this in the way they did? If an error was made they can amend for you.</p>

<p>on choosing residency, that is for TUITION purposes that students remain dependent on parent residency, I think they can choose for tax purposes?</p>