This has been most helpful. I have a little bit of a twist to the scenario. Parents income too high to take advantage of dependent or education. It is close regarding if child 1 can be claimed by themselves or parents. The worksheet you provided was most helpful. I'll let client decide which way they want to go with that.
Regarding 1099-Q, parents made payment from younger Child 2's 529 directly to Child 1's college. Beneficiary, is Child 2, and 1099-Q social listed under Child 2. Since the distribution was not used by the beneficiary (Child 2), the earnings are now taxable, and a 10% penalty is owed, correct? Whose tax return reports the income? Child 2, or the parents? If Child 2 reports it, then Kiddie Tax kicks in.
If Child 1 is claiming themselves and parent doesn't claim them as a dependent, then Child 1 can use the 1098-T education expenses on their return, instead of parents, correct? If parents claim Child 1, then the parents would include the 1098-T education expenses on their return, correct?
