$27,166 of qualified Tuition expenses
+ 2,800 Board
- 14,000 paid by tax free scholarship
= 15,966 of expenses are available for the 529 distribution
$13, 583 Parent's Box 1 1099-Q
+ 7, 235 Student's Box 1 1099-Q
$20,818 Total distribution
- 15,966
= 4852 Total Non Qualified distributions
You want at least ~$1500 (2200-775 +88 -19) to go on the student's return to take advantage of his lower tax rate. After that, it should be taxed at the parent’s rate regardless of which return it’s entered on*.
So, for simplicity, you should not enter your 1099-Q, at all, taking the attitude it’s all covered by qualified expenses. For your son’s return, he has 15, 966 – 13,583 = 2383 of qualified expenses and 7235 – 2383 = $4852 non-qualified distribution.
How to enter, in TT, on his return:
Enter the 1099-Q, exactly as received.
Enter the 1098-T with $16,383 (14,000 + 2383) in box 1 and $14,000 in box 5. The scholarship must be shown for TT to calculate the penalty exception. Enter no other numbers (board/meals was used by you).
Anticipated result: 4852/7235 =67% of the earnings are taxable. 0.67 x 4164 =2792 taxable income which will be entered on line 8 of Schedule 1.
*But, taxes are complicated and ideally you would try several scenarios to see which way comes out best. But that’s cumbersome in do-it-yourself software.
