$10,756 R&B is more than the $9517 in box 1 of the 1099-Q. The 529 distribution is totally qualified and tax free. Do not enter the 1099-Q, at all*. Delete it if you already entered it.
There is no longer any need for him to report any of his scholarship as taxable. Do not enter the 1098-T on his return.
On your return, enter the 1098-T, exactly as received, to get the AOTC. Don't bother to enter any other expenses.
Q. I am very hesitant making an adjustment to the Larger Education Credit. I feel there is a reason TurboTax defaulted to $6383, but I like the idea of owing less!
A. That's not longer an issue, as no longer need to re-allocate expenses between the 529 and the AOTC, There's a glitch in TT. It tends to assign the amount needed for the other credit (the Lifetime Learning Credit - LLC), which needs more than $4000 to get the max. Hence the $6383.**
You still only need $4000 to get the max credit and you have more than that. $9015-2875 = $6140 > $4000.
*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 (which we have done).
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”.
**You said you had about $300 of other expenses. That $6383 number suggests that the actual amount you entered was $243 (not $300). 9015 + 243 - 2875 = 6383.
