Forget the 1099-Q. For 2 reasons: if box 2 is 0, there is nothing to be taxed. Furthermore, it's obvious that there was enough room and board to cove the $1134. DO NOT ENTER IT.
The 1099-Q is only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return.
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."
Q. Once I add up tuition and fees, deduct the restricted scholarships, and add books/supplies, there are $3,799 ACTUAL qualified education expenses. That is $201 less than the maximum of $4,000 for AOTC. Is that $3,799 all I should claim towards the AOTC?
A. Yes, that is your total qualified expenses. The AOTC is 100% of the first $2000 of expenses and 25% of the 2nd $2000. You do the math.
Q. If I put $3,799 of expenses towards the AOTC, does that also mean she should have $3,799 removed from unrestricted scholarships and grants received, and claimed as taxable income?
A. Yes, but not exactly. You count only the scholarships, including the Pell Grant. You do not count the loans, subsidized or not. I counted $2067 in scholarships.
Q. That would still put her total income around $10,000 with her job, so she wouldn't owe taxes (I don't think?).
A. Correct. Technically she isn't required to file. You may want to anyway to document the reporting of scholarship income.
Q. Does it matter that I didn't actually pay $1,134 to University A for room and board all at once, as long as I have enough room and board expenses at the end of 2024 to account for the $1,134 listed on her 1099-Q?
A. It does not matter. But, it's now moot (see above).
Q. The 1099-Q does take into account that the $785 grant was deposited into her 529 plan. I just don't know how to make this make sense on our tax return.
A. There is nothing to report on your tax return, about that. You received $785 in scholarship. You made a $785 contribution to your 529. In your mind, they're related. They're not. They're two separate events.
Q. Or is that wrong? Is there a more financially sound way to allocate this money to get the maximum legal AOTC?
A. No. You nailed the basic idea. There's just some minor manipulation of the numbers.
Q. What to do the left over room and board with $1,096?
A. Nothing R&B are only qualified for a 529 distribution.
Q. We think claiming her as a dependent will be more financially beneficial for us (parents) than for her to claim herself?
A. Yes. But it was never optional. She cannot claim herself and she is not eligible for the AOTC, even if she could.
