The scholarship is usually better because it is treated as earned income for purposes of calculating the student's standard deduction. If he already has $12,950 of other earned income to offset his standard deduction, then it would be better to have the ESA earnings taxed instead.
Q. f it is better to use the ESA, how/where does one make this selection in TurboTax (I have the download edition)?
A. How? Very carefully. Enter the 10990-Q at the 1099-Q section and the expenses at the 1098-T section. You should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is $5500 (or whatever the parent used used). Check the student information work sheet (part VI, line 17) to verify it was entered.
Be advised some people (last year) were saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s interview. If not, the alternate workaround is to enter $5500 (or whatever the parent used) less than the actual box 1 amount, when you enter the 1098-T.
With download TT, you can also make any needed adjustments on the student info worksheet
Q. If it is better to use scholarship , how/where does one make this selection in TurboTax ?
A. The question is academic, in your case, since you will be entering the ESA earnings as taxable income. But, for others reading this: After entering scholarship at the 1098-T interview, you will be asked how much of the scholarship was used for room & board. Enter the taxable amount of scholarship there. Since R&B is a non qualified expense, TT will treat that much as taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.
