@idotaxes said:
Yes, student is parent's dependent. .... Scholarships do not indicate if it's required for tuition. The student's name and social security number is on the 1099Q. The $5,797 is room and board. The student has $5,127 in earned income from part time jobs. The parent would qualify for the tuition credit. Student graduated high school in June and is a freshman in college.
The parents should claim the American Opportunity Credit (AOC). The simple way, enter the 1098-T with $4000 in Box 1 and Box 5 Blank. No need to enter any other numbers. The student will pay a little more tax on her return.
On the student's return, don't worry about the $4629 late 529 distribution (it's included in the $16,019 and was effectively paid in 2021).
Entering her info in TurboTax will be complicated. She wants to declare $7073 of scholarship as taxable (12550 - 350 - 5127) to get the maximum standard deduction. So, that means that $9878 (16,951 - 7073) of the scholarship will be allocated to tuition. That leaves $7066 (20, 944 - 4000 -9878) of tuition to allocate to the 529 distribution. Qualified 529 expenses are 7066 + 5797 (R&B) = 12,863. 12863 / 16019 = 80.3 % of the earnings are tax free (19.7% are taxable). 0.197 x 8862 = $1746 taxable income from the distribution (subject to the "kiddie tax").
Theoretically, TurboTax (TT) can handle all that and give you that result. On the student's return, enter the 1099-Q first. Later enter the 1098-T and Room & Board (to get the screen to enter Room & Board [R&B], answer yes when asked if you have book expenses). When asked how much of the scholarship was used for R&B, enter $7073 (that's to make it taxable, it didn't literally have to be used for R&B). You should eventually reach a screen called "Amount used to calculate education credit." Be sure the amount in that box is $4000.
