KrisD15
Expert Alumni

Education

Who was issued the 1099-Q, you (the owner) or the student (beneficiary)?

It's usually better to have the student make the distribution and have Form 1099-Q issued to the student. That way if any of the distribution is taxable, it will be taxable to the student at the student's tax rate. Making direct transfers to the school will result in the 1099-Q being issued to the student. 

 

A distribution of 1,944 would be best applied to Room and Board. Room and Board can offset a distribution, but cannot be used for a credit. Even when a student is at home, a living expense not more than the school charges for room and board can be applied. That would leave zero distribution taxed.

 

That leaves expenses over scholarships of 1,955. 

The credit maxes out with 4,000 expenses. 

Most likely it would be advantageous to have the student claim 2,005 in scholarship income giving you 4,000 towards the credit. This also would depend on whether the student has other taxable income. 

 

In TurboTax, enter the 1099-Q first, then enter Form 1098-T, additional expenses for books and supplies as well as room and board expense.

Continue through the Education interview until you click "Maximize my tax break"

The Room and Board should cancel-out the distribution and the program should suggest the student claim 2,005 scholarship giving you the full credit.

If the student's income is below the filing threshold for dependents, they needn't even file and the scholarship income will not be taxed. The scholarship income would also qualify as earned income for the student allowing them to contribute to an IRA if they so desire. 

 

Type    letme    to see the options for the credit and to change the expense allocation if desired.  

 

Pub 970 explains more 

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