Q. Should I just delete all of the 1099-Q and 1098-T information from TT?
A. Yes, if you know none of it is taxable.
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
References:
- On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
That said, To get the screen to enter Room & Board, answer yes when asked if you have book expenses, in the 1098-T and educational expenses section. To get the R&B entry box, you must have entered the 1099-Q prior.
If the $326 is the student's only income, it would appear to be under the filing requirement ($1250 of unearned income). But, since the 10% penalty applies, he will need to file a return.
