As many college students have found out over the last few years, the tax laws aren’t what they use to be. Now it all depends on whether your client has a degree or not and what they need the money for.
If your client is not pursuing a degree, then get ready to fork the money over to the IRS because everything from the scholarship to the fellowship income they received is taxable.
If your client is planning to get a degree then everything except room and board is tax exempt. Any money your client received for doing their research, teaching, or providing any services to the university or institute is taxable.
Books, supplies and equipment that your client purchases as minimum requirements for their course are tax-exempt. But if your client is in a video editing class, and the professor suggests getting a video camera to help better acquaint him or herself with the craft, the video camera they buy for that course through their scholarship money is not tax exempt. Any equipment that your client buys as a recommendation from the professor is taxable because it is not part of the minimum requirement.
