Hello again,
I so appreciate your response and the very detailed explanation of the two ways that will allow my daughter to use the online Turbo Tax for this situation.
Your #1 method seem a bit more complete by including the 1099-Q. No big concerns came up when we entered it this way but I will mention a couple things.
In “Your 2020 Income Summary”, “Less Common Income”, “Miscellaneous Income, 1099-A, 1099-C” it does show $20,835 (which makes sense). Further along in the “Coverdell ESA and 529 qualified tuition programs (Form 1099-Q)” we see “who’s shown as the recipient on your 1099-Q” and we have indicated my daughter. We have noted “someone else” for “Who’s the student?” We have selected her name on the next page and again on the “confirm this student’s name” page. Then, in completing the 1099-Q Information, she unchecked the box for #6 “Recipient is not Designated Beneficiary”. The next page reviews the discrepancy of her having indicted the recipient of the 1099-Q Form was not the student whose expenses were paid yet she did not check the box that the Recipient and Beneficiary are different people. Mentioning this to you as I wonder if this is a red flag to the IRS in some way. Perhaps it’s not a big concern as they may just need clarification.
One additional comment on this... if we run through this section again to review it, we see it shows the box checked (Recipient is not Designated Beneficiary). Although that might be due to us again answering questions and the system may think we have started over and it then again automatically rechecks that box.
All the education numbers that we can see appear to support that this workaround calculated correctly and adjusted $4000 to now be taxable money. In the “1099-Q summary of distributions “ it indicates $2,957 as a taxable amount. With these changes, the resulting Federal tax refund increased by the full AOTC less the expected tax amount on the $2,957.
Would appreciate your final comment on this workaround being submitted to the IRS. Thank you!
