I'm new to college expenses this year. I've done a lot of searching. Answers from @Hal_Al on previous posts have been very helpful, but I'm still not sure what to do.
If I've understood correctly, I either have to choose between the $2500 American Opportunity Credit (AOC) credit OR not paying taxes on the earnings from the 529 plan (Qualified Tuition Plan - QTP). Is that correct?
Situation (numbers rounded for easier reading)
- Student is my child and dependent on taxes
- Student has part-time jobs, roughly $12,000 earned in 2024.
- 1099-Q parent recipient = $700 box 1 ($235 earnings box 2)
- 1099-Q student recipient = $14,500 box 1 ($5300 earnings box 2) - payment was sent to the school so recipient is the student
- Total from QTP = $15,200
- Total paid to school = $15,200 (actually $600 less than 1098-T + room/board, I don't know why)
- 1098-T (student recipient): $8100 box 1, $1250 box 5
- Room and board: $7700 (paid with QTP which should mean it can be claimed)
What I've tried so far...
- 1098-T goes on my (parent) taxes. We did not enter it on the student's taxes, but can/should we?
- I entered room and board under college expenses for #1 and #2, but not #3...
- If my child/student puts the $14k 1099-Q on her taxes and I put the $700 1099-Q on mine, I get the $2500 AOC credit but she appears to be charged taxes on QTP earnings.
- If I (parent) enter both 1099-Qs on my taxes, I lose the $2500 AOC credit. And from what I gather, this is not right/legal anyway?
- If I don't enter any 1099-Q at all, I get $2500 AOC credit, but is this legal? It seems like this option means I'm not paying taxes on the earnings - which I thought I'd have to do if I take the AOC credit. Should student ignore the 1099-Q, too?
I'm assuming that one of us has to pay tax/penalty on the $2500 AOC credit since I pulled the full $15,200 (school charges) from the QTP instead of $12,700. Is that how it works?
I obviously do not want to break any laws or rules, but I don't want to pay taxes on QTP earnings if possible since I thought the whole point of a QTP was to avoid being taxed on earnings.
I think my primary questions are:
What should I do with each 1099-Q?
Should the 1098-T go on both the student/dependent and parent taxes?
