1099-Q , 1098-T dependent parent confusion

[Texas_2000]

I have always used turbotax to file but for whatever reason this year I feel like its not calculating right.

Son is 23 and is finishing up his Bachelors and Masters this May.

Had a Texas Tomorrow fund that he used and depleted during the Fall Semester.....had a 529 that is covering the rest plus he received a graduate grant of $2500 for the fall.

I am claiming him as a dependent and have selected in the program that he can be claimed by someone else....

After entering my sons W-2 income from his internship and using the standard deduction he is due $2100 in a refund (He made 18K in income)...but for whatever reason when I enter in his 1099Q's which total 20K ...Room and Board expenses are a estimated 13k ....if I delete the 17k tution from the 1098-T the refund is droppping down to 1200..... but I thought I needed to input the 1098-T on my return and not my sons?

Should I leave the 1098-T on his return if my income is over the MAGI limits to claim any education credits?

Bottom line all money that was pulled out of the 529 had more than enough expenses to cover it and the tax burden should be zero but Turbo Tax is not computing that way.

My thoughts are is return should be simple. He made 18k, paid in 2700 of taxes..with standard deduction and 10% tax rate he should have paid in $600 thus he should be getting a $2100 refund....and all of the 1099-Q data should not impact that since his 529 withdrawals were more than met by qualified expenses?

what am I missing?

[Hal_Al]

You can just not enter the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) 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, in case of an IRS inquiry.  But your own math shows that already. Keep those records. 

"What am I missing?"  Actually, you figured it out; you do need to enter the 1098-T, on his return, to get TT to calculate that none of the 1099-Q is taxable. The 1098-T is only an informational document. It doesn't have to be entered, at all, or it can be entered on either or both returns (if you adjust the numbers for what was used on the other return). But, since you know you don't qualify for a credit, it does not have to be entered on your return, just because he is your dependent.

[Texas_2000]

Thanks for the quick reply.

Well I thought I figured it out...so that does make sense that when I remove the 1098-T  his return goes from $2100 refund down to $1200?  I mean Box 1 is fully covered by expenses but only if 1098-T is entered....I dont understand how that isnt the case for everyone...thats where the bulk of expense comes from right? 

On the first 1099-Q...box 1 is 12025 box 2 is 8313 and box 3 is 3712....is it because of the earnings on the basis?

On his second 1099-Q box 1 is 8214, box 2 4453 and box 3 3761....again earnings on the basis. 

Form 1098-T has 17164 in box 1 and 2500 in box 5 for a grant he received this past fall semester. 

So right now, if I leave in both 1099-Q's and the 1098-T entered on his return...it is spitting out a $2100 refund which I agree with...thats what it should be based off his income, taxes paid in - minus standard deduction.

If I delete the 1098-T it drops that refund down to $1200 which I dont get. 

I have not deleted it off my own return but I do not think it impacted my tax due since I was no eligible for any tax credits anyway.

I have read so many different things I confused myself...some say 1098-T has to go on parents return and should not go on kids return but in my case it looks like the exact opposite.  Which I'm ok with as long as I dont get a letter from the IRS in 6 months lol.  

[Texas_20000]

@Hal_Al what did what are your thoughts on my last comments? 

[KrisD15]

Put a @ sign before his name to get his attention

like @Texas_20000

There is another option as well.

If claiming your son makes no difference in your tax liability (remembering the personal exemption for a dependent is gone) 

you have the option of NOT claiming your son and he can get the non-refundable part of the credit.(can zero out his tax) 

Your son can file and select "YES Someone else can claim me" HOWEVER for the next question they must select "NO to Someone else will claim me". 

Make sure he only claims the remaining expenses.

Using your numbers, the 20,000 distribution would cover the 13,000 Room and Board as well as 7,000 of the 17,000 tuition, leaving 10,000 expenses. The grant of 2,5000 leaves 7,500. Your son can use that towards a credit on his return to lower his tax liability. 

See page 20

[Texas_20000]

@KrisD15 Thanks so if I took my son off my return I would lose the $500 dependent credit but it is possible his refund would increase by more than that $500 which in the end would be the most beneficial to the both of us? 

Is that correct?

[Texas_20000]

@KrisD15  So if on my return I select to not claim my son I did lose the $500 on my return...and on his return if I select he is eligible to be claimed but is not being claimed his return went up $613 so a net net increase of $113 if that is ok to do. 

[KrisD15]

Yes, It is an option you and your son have. 

The program will do it for you if you select the proper answers in the My Info sections 

I forgot about the $500 dependent credit you'd lose, but you're still ahead. 

Be sure you do what ever you have to do to adjust the expenses he takes. 

The American Opportunity Tax Credit maxes out at $4,000 expenses, so that is really all he needs to claim. 

[Texas_20000]

@KrisD15  Ok Im lost...what do you mean adjust the expenses he takes?  And the American Opportunity tax credit? All I did was unclick be claimed as someone elses dependent...do I need to revist other sections?

[KrisD15]

No, I am simply pointing out that the expenses will still be offset partially by the 1099-Q distribution.

If you are entering the 1099-Q and the 1098-T into your son's return, and going through the interview, there is nothing more you need to do.  

TurboTax will do the math and make the adjustments for you. 

The result is on Form 8863 and included with his return. 

I assume he will get part of the AOTC and that will offset his 600 tax liability.

His tax liability will become zero, so he will get all his withholding back.