Okay.... this took a lot of trial and error on my part to figure out what is changing the entries. The result is kind of surprising (at least to me).
Background:
CA resident
claiming adult daughter as dependent (paying 90%+ of her expenses)
took withdrawal from 529 to cover tuition/room/board only (all qualified expenses)
entered 1099q first in income section (see note below)
entered 1098t second in deduction education section
income too high to qualify for education credit (no double dipping)
note:
Apparently you have to enter the data in the order the questions are listed in turbo tax premier. learned that from some other post on this community searching for solution (post from a couple years ago i think).
every year i have to battle with turbo tax to get the 529 to not increase my taxes. my understanding is that if the withdrawals are all for qualified expenses, it should have no impact on tax refund/tax owed. i think prior year problems may have been the order. but something extra weird is going on here. maybe a bug???
for nice round numbers, lets say i have a refund of $100 from fed and ca state each. i enter 1099q and it goes down. i enter 1098t and it goes back to $100. all is good. after completing everything else in the return still at $100 each (all still good), i then go to review the taxes and it finds errors. it turns out there are some yes/no questions on depend's "Student Information Worksheet" which are blank.
Line 3 of student info worksheet is "Was the student enrolled in a program that leads to a degree, certificate, or credential?" if i answer YES, since she is working towards a bachelors degree, then the program suddenly changes the entries in the QTP section of the 1099-Q form (especially line 2c of the regular tax column) and i lose $2,596 of federal refund and lose $754 of CA refund. If i answer line 3 of the student info worksheet as NO, meaning not working towards a degree, then the tax refund goes back to $100 each again and all is good. well... not really because i answered no to the working towards a degree which is not true.
WHY why why is there more taxes to be paid if you are in a degree program?? or is this a bug in the turbotax software? Why is it a penalty to use the 529 to pay for a college degree?
Please help. I'm almost done with the taxes and thankfully she graduate this year!
