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Get your taxes done using TurboTax
This is a duplicate post.
https://ttlc.intuit.com/community/taxes/discussion/lifetime-learning-credit/00/3199011
It's clear that the student comes out better claiming the LLC and paying a little tax on the 1099-Q (I assume the 1099-Q is in her name, but the answer is the same even if the 1099-Q is in the parent/owner's name). It's just a matter of whose return the 1099-Q (and small amount of taxable income) goes on.
Also, as others have said, some room and board needs to be allocated to the 529 distribution, since the student is half time or more.
The problem appears to be in the complexity of the TurboTax interview. There is a workaround. Enter the 1099-Q. When asked who the student is answer: someone else not listed here (lying to TurboTax to get it to do what you want does not constitute lying to the IRS). Enter the student's name when asked. A few screens later, you'll get one simple screen to enter expenses (tuition and R&B). Press Done at the 1099-Q summary screen, to get there. Enter the amount (most likely the full $10K needed) used to claim the LLC as "tax free assistance".
Claim the LLC, by entering the 1098-T, without adjustments, in the educational expenses and scholarship section.
Rough estimate: An additional $1000 of income (line 8z of Schedule 1) resulting in $120 of tax vs. a $2000 LLC.