You said "If Difference 2 is positive, none of ESA $ is taxable. If it is negative, that much of the ESA $ is taxable and we do the basis calculations to find out how much"
Not exactly. If it is negative, that much of the ESA is non qualified and we do the earnings calculations to find out how much is taxable.
In your example, you said: "So, none of schols/grants taxable, but $500 of the ESA $ used is taxable (no, it's non qualified), and we need to do the basis (actually earnings) calculations to figure out how much of it to enter (figure how much is taxable). And whatever that number is, when doing the shortcut, put it in as 1098T box 5 scholarships with $0 as the box 1 costs.
No. That's how you would enter any taxable scholarship amount. Entering the taxable earnings of the ESA/529 distribution is not that simple*.
*But there is a another workaround. Enter the 1099-Q, on the recipient's return. When asked who the student is answer: someone else not listed here (lying to TurboTax to get it to do what you want does not constitute lying to the IRS). Enter the student's name when asked. A few screens later, you'll get one simple screen to enter expenses. Press Done at the 1099-Q summary screen, to get there. Enter the net qualifying expenses. In your example, $500 tuition and $12,000 R&B.
Provide the following info for more specific help:
- Are you the student or parent.
- Is the student the parent's dependent.
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529/ESA plan payments (it should not)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q
- Box 2 of the 1099-Q
- Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
- Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- How much taxable income does the student have, from what sources
- Are you trying to claim the tuition credit (are you eligible)?
- Is the student an undergrad or grad student?
- Is the student a degree candidate attending school half time or more?
