If both 1098-T and the 1099-Q canceled out to the dollar then do not report either of the forms on your tax return. Neither of these forms are required to be report. The1098-T would be reported only if you are attempting to claim the education credit. In your case, your daughter does not qualify for the credit.
I want to clarify something for your, reporting the 1099-Q on your tax is not the only way the IRS knows about the 529 withdrawal. The Bank that issued the 1099-Q is required to file this form with the IRS and yes should NOT do.
From what you have said in your question, your daughter doe not qualify for the education credit.
In answer to your P.S. question "P.S. had I known about this, I would not have cut the 529 withdrawal for the full amount of school expenses so I COULD have claimed the AOTC. Can I do this next year?" Yes you can plan better next year.
In summary, for this year, do not enter the 1098-T or the 1099-Q and call it a wash. Make sure you keep these documents and any other supporting documents for the school expenses with your tax papers.
