@rwing
The LLC is 20% of tuition, up to $10,000 and is non refundable. That is, it can only be used to reduce her tax liability.
Is your daughter your dependent or can she be your dependent. Is she a full time student. Was she under 24 on 12-31-24. Did she support her self with her own earned income. That is, is she subject to the kiddie tax? If so what is your (the parent's matinal tax rate). If 22%+, this may not be a good strategy. The 20% is applied to the full $10K. The tax rate is only applied to the 529 earnings amount (box 2 of the 1099-Q). Is the 1099-Q in her name/SS# or yours?
Theoretically, TurboTax can handle all this, automatically, but it doesn't always work. The workaround is:
Instead of entering the educational expenses in the education expenses section, enter it in the 1099-Q section of TT. When asked who is the student, check "someone else not listed here" (Lying to TurboTax to get it to do what you want does not constitute lying to the IRS). On the next screen, enter the real student's name. This will eventually give you one simple screen to enter all expenses. At the 1099-Q screen, check the box "The recipient is not Designated beneficiary". Press Done at the 1099-Q summary screen, to get to the expenses screen.
After entering your expenses, enter the total expenses (or the amount used for the LLC , if less) in the box “Tax Free Assistance”. TurboTax will prepare form 5329 to claim the penalty exception, for the scholarship/tuition credit.
