"If there is no tax liability" means this-
If the assistance, such as scholarships, exceeds the expenses, such as tuition, the student may need to claim income for that excess scholarship amount which would create a tax liability.
If a distribution was taken from a 529 Account and not used for education purposes, the earnings portion of that distribution may be taxable income for the Taxpayer whom was issued the 1099-Q, be that Owner or Beneficiary.
If a Taxpayer has a 529 savings account, education expenses, and understands how the distributions, expenses, and other aid -such as scholarships- are allocated, (and the allocation does not require any income to be claimed) that Taxpayer does not need to enter the forms on their tax return.
SOME expenses work differently with different aid.
Scholarships used to pay Room and Board are taxable to the student.
Distributions used to pay Room and Board are NOT taxable to anyone.
Expenses used for an education credit include Tuition, Fees, Books and Supplies.
Payments may be allocated most anyway that is most advantageous for the taxpayer.
"If I can't get both a credit and no taxes taken from my distribution, does Turbo Tax know to give me the greater of the two? "
SORT OF.
YOUR TurboTax program does not know the student's tax situation, so YOUR TurboTax program will pick what's best for you with the assumption that any tax the student may need to claim will be less than the benefit of the credit, and that is usually the case.
"Have a done this return correctly by entering both my 1098-T and 1099-Q?"
YES
Your TurboTax program needs all the data so that it can do the math. Your program will tell you what the student needs to claim if anything.
Complete the Education Interview Step-by-Step.
Enter the 1099-Q and then the 1098-T and all other expenses.
Be sure to enter Room and Board since that can be allocated to the distribution.
When you click on "Maximize My Education Tax Break" the program should do its magic, but it can be temperamental. The program has been known to allocate 10,000 for the credit. If you are eligible and select the American Opportunity Tax Credit, that credit maxes out with 4,000 expenses, so using any more than that is silly. The Lifetime Learning Credit maxes out with 10,000 but is usually not as valuable.
Run through the Education interview several times so that the program can adjust if necessary.
Check the 1099-Q worksheet if using TurboTax Desktop. Look at Form 8863, which would be part of your tax file, to see what is being allocated to the credit.
Search letme to see your options and change the choice of credit.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
