Get your taxes done using TurboTax

Let's start at the beginning. First of all, whoever claims the student exemption, claims the student credit. If he is not your dependent, you claim nothing. If he is getting a credit, he is claiming himself, otherwise, the program would not let him have the credit.

Next, determine if you can actually claim your son as a dependent at his age with his income. Use this quick quiz, Whom May I Claim as a Dependent?

Now to answer your questions with this new perspective.

1.  The LLC gives you a tax credit

• The refund is not the LLC but caused by the LLC. The tax liability is what you look at for LLC credit. You can get a refund from the tax liability changing. You can't get a refund of the LLC - since it only works on liability IF you are claiming yourself.
• Example: 
  • tax liability of $2,500 
  • paid taxes of $800, 
  • you owe money - $1700 
  • Add education credit - LLC kicks in and covers $2k of the $2500 tax
  • tax is now $500 
  • $800 tax paid covers the other $500 of tax and you have a refund of $300.

2. When you do your taxes, only one of you will have an education credit. The one claiming the exemption. Carefully go through both returns and make sure the right person is claiming the student's exemption and credit.

b. The 529 - was it only $2,000? This could go towards room and board and not be taxable at all probably. 

• See if you can use it up with 529 qualified Room and Board. 
• If not, can it go towards education expenses and still leave the $10k for LLC?
• If not, then it is taxable.