You really haven't ask a clear question. Even though, there's a simple answer. Don't enter the 1098-T or the 1099-Q.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. If neither applies to you, you don't need to enter the 1098-T.
The 1099-Q is also only an informational document. You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. 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.
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."
But taxes aren't simple.
There are three things you can do with your Qualified educational expenses (QEE):
- Allocate then to scholarships (so that the scholarship remains tax free)
- Use them to claim an education credit
- Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable
You are allowed to allocate expenses for the best tax benefit. TurboTax allocates QEE, in that order, until you tell it otherwise. So, the TT interview is complicated to accommodate that.
