The 529 distribution changes things. The Lifetime Learning credit (LLC) is a non refundable credit. If the student has a tax liability, she may be able to claim it.
The 1099-Q and the 1098-T are only informational documents. The numbers on them are not required to be entered onto you (your student's) tax return.
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."
TurboTax is (probably) doing it right, but not necessarily what's best for her. There are three things you can do with your Qualified educational expenses (QEE):
- Allocate then to scholarships (so that the scholarship remains tax free)
- Use them to claim an education credit
- Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable
TurboTax allocates QEE, in that order, until you tell it otherwise. Depending on the calcs, You may not need to enter anything. .. It gets complicated.
Provide the following info for more specific help:
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529 plan payments (it should not)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q
- Box 2 of the 1099-Q
- Who’s name and SS# are on the 1099-Q, owner or beneficiary (who’s the “recipient”)?
- Room & board paid. If student lives off campus, what is school's R&B charge.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- How much other taxable income does the student have, from what sources
- Is the student half time or more?
