Q. The IRS said I reported part of the income as unqualified/taxable. I have no idea how that happened with the TurboTax software guiding me?
A. Look at the student info worksheet and 1099-Q work sheet for the calculation of the taxable (non-qualified) amount. See this thread, for a general discussion on the taxable amount:
https://ttlc.intuit.com/community/college-education/discussion/529-bug/01/2462587/highlight/false#M4...
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
TurboTax allocates QEE, in that order, until you tell it otherwise. TurboTax allocates QEE, in that order, but it doesn't do a very good job. It's best if you have some idea of the outcome expected, when you make your entries.
Q. Now I have to amend the return?
A. Yes. If you know for sure that none of it is taxable, just delete the 1099-Q.
