Bottom line:
1. You do not need to report either 1099-Q on your tax return or your daughter's.
2. You can claim the full American Opportunity Credit (AOTC) (up to $2500 depending on your tax liability)
3. Your daughter will report some (most) of her scholarship as taxable income. But, she will owe no tax on the scholarship because taxable scholarship is treated as earned income for calculating a dependent's standard deduction (earned income + $400). There will be about $35 tax on the interest & dividends.
The details:
$10,508 Tuition + $5304 R&B + $3903 Books etc = $19,715 QEE (qualified educational expenses)
$19,715 QEE - $4000 for the AOTC = $15,715 Adjusted QEE (AQEE)
$3903 + $9786 = $13,689 Total 529 Distributions
Since $13,689 is less than $15,715, neither of the 1099-Qs are taxable.
$15,715 AQEE - $13,689 used for the 1099-Qs = $2026 AQEE remaining for allocation to the scholarship
$9786 - $2026 = $7760 Scholarship will be reported as income, because there is no more QEE to allocate to it
$7760 + $750 int & div = $8510 Total reportable income
$7760 "earned income" + $400 = $8160 Dependent's standard deduction
$8510 - $8160 = $350 taxable income x 10% = $35 total tax
Reporting this in TurboTax (TT) is real easy, if you use a workaround.
On your return, you enter the 1098-T at Educational Expenses and Scholarships. But you enter it with $4000 in box 1 and enter no other numbers. That gets you the AOTC. $4000 is the amount needed to get the maximum AOTC.
On her return, you enter the 1098-T at Educational Expenses and Scholarships. But you enter it with $7760 in box 5 and enter no other numbers. The $7760 will show up on line 8r of Schedule 1.
The 1098-T and 1099-Q are only an informational documents. 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 you claim the tuition credit, you do need to report that you got one.
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. You just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.
