My numbers do not seem to be adding up.
Clients claimed $10,000 in qualified education expense for dependent child. Dependent child took out gross $14,122 (1099 Q) of which $6,415 were earnings. Total qualified education expenses were $12,670. I am now doing the childs return to see what part of the earnings is taxable and what penalty he might have.
I know I have to reduce the total expenses by the $10,000 the parents claimed on their return. I have $2,670 for expenses left. So... $6415 X 2670/14122 = 1213 of tax free earnings? Making taxable earnings $5202?
This just doesn't seem correct. If it is then does it mean total expense claimed are $10,000 on the parents return and $1213 of tax free earnings for a total of $11,213. But total qualified education expenses were $12,670. It seems as if my math is shorting my client of $1,457 of education expenses (12670 - 11213).
Then, is my penalty on $5202 taxable earnings or on $1457 the difference between the gross distribution and qualified expenses?
Clients claimed $10,000 in qualified education expense for dependent child. Dependent child took out gross $14,122 (1099 Q) of which $6,415 were earnings. Total qualified education expenses were $12,670. I am now doing the childs return to see what part of the earnings is taxable and what penalty he might have.
I know I have to reduce the total expenses by the $10,000 the parents claimed on their return. I have $2,670 for expenses left. So... $6415 X 2670/14122 = 1213 of tax free earnings? Making taxable earnings $5202?
This just doesn't seem correct. If it is then does it mean total expense claimed are $10,000 on the parents return and $1213 of tax free earnings for a total of $11,213. But total qualified education expenses were $12,670. It seems as if my math is shorting my client of $1,457 of education expenses (12670 - 11213).
Then, is my penalty on $5202 taxable earnings or on $1457 the difference between the gross distribution and qualified expenses?
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