SecondCor521
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Hi all,
I have made a tax planning error that I'd like your help in trying to rectify or minimize.
I have three adult children. For 2020, the older two were not my tax dependents. The youngest was my tax dependent.
In 2020, I withdrew funds from their 529s for various purposes that did not qualify as AQHEE. This resulted in Schedule 1 Line 8 Other Income for each of them. In particular, I withdrew enough to create what I calculate as $1,414 of other income for my youngest (using the formulas from Pub 970 in the QTP chapter).
Because of this other income, they are required to file a federal return based on the criteria in Chart B.
Because they are required to file a federal return, I'll be required to include their income on my Form 8962. Because their total income is close to $12,000 (they had $3,317 in taxable scholarships, $2,848 in taxable Pell Grants, I'm adding in $4,000 for the AOTC, and about $1K at a McDonald's job plus $250 in housesitting income), that's going to decrease the ACA subsidy on my return.
Although they each have individual 529s, I manage them collectively for their collective education expenses and regularly transfer funds back and forth between their accounts as their college plans and costs change.
Is there any proper way you can think of after the fact for me to shift most of that other income from my youngest (who is my tax dependent) to one of my other children?
I thought about re-contributions, but there were no refunds to me for any of my three kids' college expenses within the past sixty days.
I thought about a rollover, but the only distribution within the last sixty days was from my oldest child's account, so I don't think that would help me.
The only idea I've come up so far with is to forgo the AOTC for 2020 for them, which would at least reduce their income by $4,000 and lessen the loss of the ACA subsidy bite by about 1/3. They're a freshman now so I might be able to manage to use it over some subsequent four tax years.
There's really no way I can find to ethically say they're not my dependent in 2020, even though that would get them the EIP1, EIP2, and solve this tax problem. They were a high school student through the spring, lived at home in the summer, and were at college in the fall. They earned a bunch of scholarships, but those don't count for support purposes. And I paid for food, shelter, utilities, etc.
So I think we are stuck, but any other thoughts or options would be most welcome. I haven't plugged the number into my Form 8962 yet, but I think it's about $1800 in ACA subsidy loss.
I have made a tax planning error that I'd like your help in trying to rectify or minimize.
I have three adult children. For 2020, the older two were not my tax dependents. The youngest was my tax dependent.
In 2020, I withdrew funds from their 529s for various purposes that did not qualify as AQHEE. This resulted in Schedule 1 Line 8 Other Income for each of them. In particular, I withdrew enough to create what I calculate as $1,414 of other income for my youngest (using the formulas from Pub 970 in the QTP chapter).
Because of this other income, they are required to file a federal return based on the criteria in Chart B.
Because they are required to file a federal return, I'll be required to include their income on my Form 8962. Because their total income is close to $12,000 (they had $3,317 in taxable scholarships, $2,848 in taxable Pell Grants, I'm adding in $4,000 for the AOTC, and about $1K at a McDonald's job plus $250 in housesitting income), that's going to decrease the ACA subsidy on my return.
Although they each have individual 529s, I manage them collectively for their collective education expenses and regularly transfer funds back and forth between their accounts as their college plans and costs change.
Is there any proper way you can think of after the fact for me to shift most of that other income from my youngest (who is my tax dependent) to one of my other children?
I thought about re-contributions, but there were no refunds to me for any of my three kids' college expenses within the past sixty days.
I thought about a rollover, but the only distribution within the last sixty days was from my oldest child's account, so I don't think that would help me.
The only idea I've come up so far with is to forgo the AOTC for 2020 for them, which would at least reduce their income by $4,000 and lessen the loss of the ACA subsidy bite by about 1/3. They're a freshman now so I might be able to manage to use it over some subsequent four tax years.
There's really no way I can find to ethically say they're not my dependent in 2020, even though that would get them the EIP1, EIP2, and solve this tax problem. They were a high school student through the spring, lived at home in the summer, and were at college in the fall. They earned a bunch of scholarships, but those don't count for support purposes. And I paid for food, shelter, utilities, etc.
So I think we are stuck, but any other thoughts or options would be most welcome. I haven't plugged the number into my Form 8962 yet, but I think it's about $1800 in ACA subsidy loss.