Reply To: Tips on giving out Chapter Scholarships


    April 2, 2023 at 8:29 pm

    Books are a qualified educational expense and may not always be taxable.


    If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:

    • You’re a candidate for a degree at an educational institution 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; and
    • The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.

    I get it is easier to go through school and let them sort it out but in some cases to maximize the American opportunity credit you may want certain scholarships to be counted as taxes for your child in order to maximize the credit (for the parent) which allows them to help with future expenses. This is the case when the child is still being claimed as a dependent. I have seen people increase their credit/return by over $1,000. In some cases your student may get stuck with a $50 -$100 tax bill for claiming $1800 of their scholarship money, but the refund to the parent can more than off set that tax expense and provide additional income to the family.