@chilityler Just don't enter the 1099-Q, since you know you have more than enough expenses to cover it ($10,500 > $1700). When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.
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."
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Two other issues you don't mention: 1. Are you eligible to claim the American Opportunity Credit (AOTC) and 2. your son has taxable scholarship that may have to be reported, on his tax return.
You may claim the AOTC even though all your son's expenses were covered by scholarship.
There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $18,000 in box 5 of the 1098-T and $11,000 in box 1. At first glance he has $7000 of taxable income and nobody can claim the American opportunity credit. But if he reports $11,000 as income on his return, the parents can claim $4000 of qualified expenses, for the AOTC, on their return.
Books and computers are also qualifying expenses for the AOTC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, he would only need to report $10,000 of taxable scholarship income.
