1099-Q / 1098-T

[Desiree1231]

I am parent claiming son in college.

He received a 1099-Q in his name & SS #.  

I am claiming his 1098-T for the college credit.

I entered his 1099-Q on his tax return and it shows some is taxable when all went to college expenses.  

Is this correct?

Is there a place I can enter some of the college expenses for him so none of the 1099-Q is taxable?  

Thank you!

[KrisD15]

You can either

enter the 1099-Q and 1098-T into your program and let your program do the math

or

not enter the 1099-Q at all, then lower Box 1 on the 1098-T by the amount of the distribution IF NEEDED

or

not enter the 1099-Q at all and report that amount of the distribution as aid not enter on a W-2 or other tax form IF NEEDED

(this would only be needed if you can't allocate all the distribution to room and board)

Distributions from a 1099-Q can be used for room and board but room and board expenses can't be used for a credit, so always allocate the distribution to room and board first. 

SOMETIMES, having the student claim some of the distribution will allow you to get a larger amount of credit.

If you are claiming the American Opportunity Tax Credit on your return, that credit maxes out with 4,000 education expenses, so trying to claim any more than that is silly

IRS PUB 970 has some great examples and advice

According to the IRS Pub 970 

“Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.”

[Hal_Al]

Q. I entered his 1099-Q on his tax return and it shows some is taxable when all went to college expenses.  

Is this correct?

A. Probably not. The TurboTax (TT) is tricky. If you know that none of it is taxable, just don' enter the 1099-Q (or delete it, if you already entered it).

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) and after adjusting for the $4000 you used to claim the credit, to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

References:

1. On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 
2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.

Q. Is there a place I can enter some of the college expenses for him so none of the 1099-Q is taxable?  

Thank you!

A. Yes, if you still want to try to enter it.  After entering the 1099-Q, you will later enter the expenses in the "Educational Expenses and scholarships" section.  Enter the 1098-T, even though you already entered it on your return. To get the screen to enter Room & Board, answer yes when asked if you have book expenses.  You will eventually reach the screen "amount used to claim the education credit". If TT has not prepopulated that with $4000, you should enter (or change to) $4000.

Alternate method: 

Instead of entering the educational expenses in the education expenses section, enter it in the 1099-Q section of TT. The workaround is: when asked who is the student, check "someone else not listed here" (Lying to TurboTax to get it to do what you want does not constitute lying to the IRS). On the next screen, enter the real student's name.  This will eventually give you one simple screen to enter all expenses. Press Done at the 1099-Q summary screen, to get there.