EDIT 3-29-23: Poster states that the box 2 amount on the 1099-Q is a negative number. This means that there are no earnings in the distribution and no part of the distribution will be taxable, even if none of it was used for educational expenses. You can choose not to enter the 1099-Q at all. Even if you do enter it, TT will calculate 0 income.
The rest of this reply assumes that there was a positive amount in box 2 of the 1099-Q.
She can claim the LLC and will pay tax on all the 1099-Q earnings ($154). She's in the 12% bracket, so about $18 in tax. Technically there is a tiny amount of penalty, since the distribution exceeds her tuition, but rounding should take that to 0.
Even if she lives at home ("off campus") she is allowed to claim room board for the 1099-Q. She can claim the lesser of her actual cost or the school's "allowance for attendance" (essentially what on campus student's pay. This number is usually available at the school's web site. But, in your case, it will not affect your bottom line.
The LLC is 20% x $9173 = $1834. Her tax liability is only about $1400 (including the $18), so the LLC wipes that out. The LLC is non refundable (she doesn't get the extra $434 +/-, in her refund).
But this means, you have to enter everything in TurboTax (TT) and hope TT gets it right. Enter the 1099-Q before you enter the 1098-T. When you enter the 1098-T, you should eventually get a screen "Amount used to calculate the credit or deduction". That amount should be $9173. You will be given a chance to change it.
If you don't get the results expected, reply back, I'll give you a workaround.
