Taxes, grants, earned income, accountants, residency

<p>this website is a great resource! even if the questions are not fully answered, the input and brainstorming is very helpful. I like the CPA's answer about doing research for the clients. The way it should be.
I did call and asked the reason he did it that way, but since it only includes one semester, it might be ok to leave that return alone. There was an initial expense of laptop and related expenses that was required of freshmen. So, there might not be an actual problem. 2008 will include a full year, so I should try and find someone who is experienced in this topic. I might consider paying the full room and board next school year so that the credit is in the account and the grant does not get applied to taxable expenses, and saved it for the claimable costs. I guess this year is going to be a test in financial management.
This govt should leave alone "need based" college grants. If the school determines that a student needs assistance in covering college costs of higher education and gives that aid, why in the world would a govt that offers very little assistance to middle class, penalize a student for needing help by taxing that gift! We parents really need to lobby for better benefits and tax laws for our children. So many corporate credits and deductions and kids get taxed like crazy! It is nuts! The answer is in lobbying the way big corporations and organizations do. Is there an organization for college students parents that is actively involved in changing things for the better? This is one group of citizens that seem to beforgotten by the lawmakers.
thank you to all of you who have brainstormed with me..</p>

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?

It's not actually a loss. It's just paying the tax you should have paid in the first place. There is a chance the accountant will pay the penalty, but definitely not the tax. And the interest is making up for the use you had of the money that you shouldn't have had.</p>

<p>Besides..............we've all told you the proper way to handle it now. So it' going to be hard for you to blame the accountant for something you know is wrong.</p>

<p>in many cases, the amount of money paid over the tuition is below the amount that would be taxed anyway since the student still gets to claim themselves when they file taxes and that exemption was about 5300 for 2008</p>

<p>In other words, no federal tax would have been due on that money in most cases unless you got alot more than the tuition.</p>

<p>Someone will correct me if I'm wrong about that :-)</p>

<p>Sue, good point for a smaller amount, esp a one term amount......though if it were me, I would still report it ;)</p>

though if it were me, I would still report it


<p>I'd report it's completely dishonest not to.</p>

<p>Its not dishonest. You don't have enough information to ascertain whether it is taxable or not. You are assuming the school has included all qualified education costs in box 2. That is not necessarily the case.</p>

<p>that is correct, the school does not report all qualified expenses in box 2, so just subtracting that amount from the grant is not the answer. It is not only the federal tax, what about the state? your wages have to match the federal, so you end up paying in both states for the grant?, plus the FAFSA will increase the EFC. So, the grant received due to financial need will adversely affect even the FAFSA? Since you have to report the wages indicated in the federal return in the latter form . I still think that letting that money in the college account as a credit, might be a positive thing as far as not been accessible "income". </p>

<p>"Besides..............we've all told you the proper way to handle it now. So it' going to be hard for you to blame the accountant for something you know is wrong."
I am not sure you completely understood my post. I am not blaming the accountant because I am not sure anything wrong was done. We were brainstorming, because no one really knows what is right or wrong, due to the fact that all colleges do not work their grants,billing and credits the same way. And each situation might be different due to the latter. Can't generalize altogether. Like the accountant said, he has not encountered this situation, so how you can be so sure that something is wrong, makes you a very special person.
The school has already indicated that the grant application to the bill follows no priorities, they could be paying the full room and board and applying the leftover to the tuition, in which case, the monthly payments I am making are actually for the balance of the tuition, and there is no excess grant to consider as income. I will figure this out soon, I hope.</p>

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?


<p>Analysis: your accountant does not have a clue about scholarship income when stating that "the money was not given to her personally, she never had possession of it, so he does not count it as income." However, based on the amounts "34,994 in box 2 (tuition) and 37,834 in box 5(grants)" he might have been plain lucky because the difference (and the reportable income) were below the taxable income (after exemptions and deductions.)</p>

<p>Please be aware that this situation might not repeat itself in the next years. Scholarship income and qualified expenses might be reported on a calendar basis and you might be surprised that more income is reported by the school in specific years. </p>

<p>Also note that you have the right to report the income and expenses differently from the schools by using income/expenses actually paid in the year you report. However, you need to remain consistent and keep good records as well as attaching statements on your return to show the variance from the 1098T. </p>

<p>Finally, while there are a few grey areas (such as expenses for books and fees) there are no grey areas about room and board, travel, and personal expenses. </p>

<p>At the end, the process is NOT that complicated since it follows basic rules. The first one being that all scholarships are taxable. The second rule is that a taxpayer is allowed to deduct qualified expenses to lower the income to be reported as scholarship income. </p>

<p>Fwiw, you cannot rely on the fact that the school is paying the room and board directly; it does not change one iota that the scholarship paid to cover the room and board IS taxable and that there is NO deduction for room and board. Again, it is simpler to add all the income, add all the qualified expenses, and then ascertain if it is better for the taxpayer to use the actual paid dates versus the "billed" dates on the tax form. </p>

<p>PS Make sure to understand how scholarship income (and work study) is reported on the FAFSA and how you get a similar credit.</p>

<p>FYI, I didn't mean that just because it wasn't going to be taxable that it shouldn't be reported!</p>

<p>I DID mean that it made no sense to NOT report it since it most likely wouldn't be taxable.</p>

<p>The accountant has a point about phantom income. Some or all of the "grant" is generally a paper exercise where the university boosts costs and then decreases them as "aid". Such accounting with a sum of zero on the university's balance sheet may have a nonzero cost to a student who reckons it as scholarship income.</p>

in many cases, the amount of money paid over the tuition is below the amount that would be taxed anyway since the student still gets to claim themselves when they file taxes and that exemption was about 5300 for 2008</p>

<p>In other words, no federal tax would have been due on that money in most cases unless you got alot more than the tuition.</p>

<p>Someone will correct me if I'm wrong about that :-)

Only a technicality, but if the parents are claiming the student on their return, then the student is not claiming themselves. They do, however, still get the standard deduction which for 2008 is $5,450. In the OP's case that would make the difference between the scholarships and the qualified tuition not taxable unless the student had other income.</p>

<p>great points! thank you. I still think is wrong for the govt to not include room and board as claimable expenses, especially in the first years, since all grants given are contingent on the student living on campus. And, frankly, it they want a society of well trained individuals to take over the positions vacated by retirees, etc., the govt should have more aid for middle class (other than loans) or stay out of "need based" aid! I see that the grant assistance might become a nightmare at times, especially when added to ws income or Summer internships. They make it so that you have to recur to loans, because they are not counted as wages and you get a deduction for the interest paid. Why not give us a bail out?
I do think that this a year per year situation and has to be watched carefully. What happens is that, for some assistance programs, not college assistance, if someone pays your rent directly to the landlord, (not give it to you to give to the landlord) it is not counted as income, but for other programs of assistance, it does(like SSI). Is there a way to have your home taxes deducted from the income at the college state so that there is a better chance of not having to pay at the end if the time comes?She is already claiming 0 exemptions in the W2. Can we ask the payroll to take other taxes?</p>

<p>I'm trying to set up a simple bookkeeping system so that I know at tax time what we've paid and what the tax treatment should be. I have a question on fees that are/are not allowed, if any of you pros or parents can help.</p>

<p>Pub 970 states "Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. This is true even if the fee must be paid to the institution as a condition of enrollment or attendance." are NOT qualified. But, "Tuition and fees required to enroll at or attend an eligible educational institution" and course related fees ARE qualified.</p>

<p>What are examples of a non-qualified fee that the univerisity requires? Orientation fee?</p>

<p>To go back to the CPA issue, I have had a CPA do taxes for myself, my kids, my business, for years. I always read all of the returns before signing and call them with ANY questions. Additionally one CPA made an error which incurred a penalty. Because it was the CPA's error they paid the penalty.
It has been my experience that the better CPAs have this policy.</p>

<p>3bm103, you clarified what I was TRYING to say, even a student that is claimed as a dependent on parent's tax return gets the standard deduction(and not the extra ~3500 personal exemption).</p>

<p>Exemption, deduction, similar, yet technically different :-)</p>

What are examples of a non-qualified fee that the univerisity requires? Orientation fee?


Good question. I had a hard time reconciling my daughter's first 1098 with the actual tuition and fees I had recorded on my little spread sheet. Turns out there were several fees lumped in with the fees she had to pay that are not allowed by the IRS. They were an Athletic fee, Transportation fee , college newspaper fee, and a
Health Service Fee. The first 2 fees were for things she does not even benefit from. And come to think of it she never used the 4th as the one time she need a doc they were closed. It was not a vast sum of money so I did not research it much further. And things such as the required orientation and freshman medical something that were charged separately from fees based on credit hours were not included in the 1098T either.</p>

<p>It is all very confusing.</p>

<p>Thanks, scm! Hmm..this means the $190 New Student orientation fee for "costs associated with academic planning, univeristy ID card, and publications" is not qualified I guess.</p>

<p>My experience is that if a careful layperson (or software) does taxes, the exact letter of the tax code is followed. If an accountant does taxes, only that part of the tax code gets followed that is likely to be picked up on in an audit. Accountants who do a lot of taxes tend to worry far less about certain things than ordinary mortals like us.</p>

<p>viccarious, I think you are exactly right! we as parents are dotting more i's than are needed because of our fear of the IRS audits and, might, just might, be cheating ourselves of items.</p>

<p>As for the 1098, talk about confusing! the college includes the full amount for a school year tuition and the full amount of the grant even though only half was "given" the freshman year. We have to figure out the actual amount each year because the 1098 does not match what you actually received. I am going to refer to the 2007 1098 to calculate the Spring grant and the 2008 to do the fall grant! Why would they include fees that are not claimable in the tuition and related expenses? I was thinking about using that amount as a guide.</p>