Originally Posted by taxboy9317
#1;If indeed the money sent to the university must be declared as income by the student, doesnt that really destroy the intent of the trust?
#2;The student, is this case my children, didnt do anything to earn this money. It is listed in the trust documents as a gift specifically set aside for education. If I have to turn around now and file tax returns for both my kids and pay tax on these gifts, what is the point of setting up a trust to pay for these expenses?
#3;Wouldnt if have been better if a relative just pays cash to the university and didnt set up the trust i the first place?
#4;IRS Publication 970 says that moneys paid to a university by a third party are considered to be paid by the person who claims the student on their tax form as a dependent, which is me their father. I am planning on claiming the 2,500 credit under the american opportunity credit law. Is this correct?
#1;as mentioned previously, aslongas they receive them as gifts, , the donees don’t need to report them as taxable income on their returns ;please read below. However, aslongas the money is distribution for the beneficiary, the student, then as a beneficiary , he/she needs to report it as his/her income on his/her return. Tin general, the trust is taxed on any income earned from investments or other assets, but payments to beneficiaries are deducted as said, depending on if is a simple/ a complex trust. Distributions to beneficiaries in any year are taxed on individual returns on Sch k1s of 1041/1040s as said previously. The amounts are reported along with other income.
#2;As mentioned above;aslongas they are gifts for yur kids, as donees, your kids are not subject to tax on the gifts.
#3;Correct; in this case aslongas the relative pays cash DIRECTLY to te university, then this is not even treated as a gift and the donor does NOT NEED to file Form 709 even if the amount exceeds $14K for 2014 under the special tax law, I guess. then, the recipient, the donee, doesn’t even report the money, actually a gift money for tuition, on his/her return since a done for a gift money is not subject to tax..
#4;In general yes;however, it depends. For example, assume that your child, a dependent, is paying the tuition, you can claim the AOC aslongas you are claiming your child’s exemption. Conversely, if you paid the tuition but your child could not be claimed as a dependent, your child would claim the AOC, not you. Please contact the IRS for more info in detail