1098t 1099q

[confusedrf]

The whole point of the 529 was that it would grow tax-free to be used for education expenses. I did not withdraw any 529 money in excess of tuition costs this year. Let's say I withdrew $20,000 to put towards 21,000 of tuition and the Q form shows 9,000 of the 20k was the basis. Does this get me my $4,000 in expenses to get the $2500 credit? I'm about to give up on understanding this and just hope that having entered the data and in order in TurboTax correctly gets me what it's giving me!

[Carl]

Does this get me my $4,000 in expenses to get the $2500 credit?

No, because the $4000 of expenses was not paid "out of pocket". A 529 distribution is not "out of pocket", even if you are the one who is the administrator "and" the beneficiary of the account.

[Hal_Al]

Q. Does this get me my $4,000 in expenses to get the $2500 credit?

A.  Yes. But it's not the $9000 basis that's getting you $4000. It's you and TurboTax allocating $4000 of Tuition to the credit.  By using $4000 of the expenses for the credit, you have less expenses to use for the 529 distribution, so some of it becomes taxable.  

Using your example (and assuming there are not other expenses, like room, board, books and computers):

If $9000 was your basis, then $11,000 was the earnings (box 2 of the 1099-Q).  21,000 of tuition minus $4000 used for the credit = $17,000 available to use for the 1099-Q.

17,000 expenses  / 20,000 distribution =  85% of the earnings are tax free. So, 15% is taxable.  0.15 x $11,000 earnings = $1650 of earnings  income to report on your tax return. 

TurboTax usually does it this way. 

[confusedrf]

Good grief! Can I see all this somewhere on the tax form?

[Hal_Al]

Not on the actual tax "forms".  But, the details are on two worksheets, The Student info worksheet and the 1099-Q worksheet.

[confusedrf]

Yet someone mentioned I need not enter the 1099q ...this whole thing just feels like a tangled web. Well I put my faith in TurboTax hopefully it's doing the right thing ...thank you all

[Carl]

Back during my kid's college days I included the 1098 required or not. I'd rather include it when not needed, than have the IRS ask for it later - even though by their own rules I didn't need to include it.

[confusedrf]

I include both.,it just feels like I can not truly see how TT justified the awarding if the $2500..feels I am taking a leap of faith that it gets it right..,

[confusedrf]

Just an fyi. I deleted  everything in the education section and entered from  scratch and this time I'm getting $1,000 less... 1500 instead of 2500. Don't ask me why but TurboTax leaves a lot to be desired when it comes to entering this stuff they should do a far better job of walking you through all this. It seems as though if you enter something out of order things get screwed up or maybe they're correct I don't know I find this very frustrating I'm almost tempted to go try h&r block. Anyway I'm going to start the entire tax return over and have it walk me through everything in whatever order it wants and see what happens.  Errrrrrrr.

[confusedrf]

Is this what HalAl was alluding to...

I'm not sure I fully understand it but I found a thing called the student information worksheet which describes the math on how it appears TurboTax is allotting some of my 529 payments to be taxable in order to get the benefit of the $2,500 rebate.

Maybe this makes sense to you accountants out there but here's what it looks like it's doing.

I start with 51k in tuition and 23k in scholarships that leaves 28K in expenses. For some reason it issues a 10K credit. I think somebody alluded to this in an earlier post. So now I'm at 18K inexpenses. I'm not sure what happened here... Nor do I understand it but nevertheless....

It next grabs the 27k gross distribution from the Q form and subtracts the now  18K in expenses... that gives us 9k that it's sort of looks like is being portrayed as an excess or an over distribution.

It next takes the 18K in expenses divides it by the 27k gross distribution yielding 66.6% which it now multiplies the basis of 7K by as found in box 2 on the 1099q... That yields $4, 666.  Then, the 7K basis minus the 4666 leaves 2333 which it says is taxable income to the recipient which I'm going to assume is myself even though it's in my daughter's name because I'm entering the Q and the T on my own return.

I'm not sure I understand what's going on but it seems to me TurboTax is saying if I pay tax on the $2,333.. which might be $200 or so... it'll give me the $2,500 credit.

If this makes sense to any of you people out there let me know as I will sleep a little better.  Thanks all... hopefully I have wrapped this up!

[Hal_Al]

@confusedrf  said " For some reason it issues a 10K credit"

Not exactly.  It allocated $10,000 of expenses for the Lifetime Learning Credit (LLC).  If you are claiming the American Opportunity Credit ( AOC), you want to change that to $4000. If you can't find that screen, in the interview, do it directly on the student info worksheet. On the Student Information Worksheet (abbreviated Student Info Wk on the forms list), go to part VI and change line 17 (“Used for credit”) to 4000. Make the change in the first column.  That will automatically change the other columns.

@confusedrf  said "leaves 2333 which it says is taxable income to the recipient which I'm going to assume is myself even though it's in my daughter's name because I'm entering the Q and the T on my own return"

No. She is the recipient; so the taxable income goes on her return.  Entering the 1099-Q on your TurboTax(TT) account  is just informational (it's gonna tell you how much income the "recipient" has). You coulda and shoulda not have entered the 1099-Q on your TurboTax account and let TT do the calcs on her return. 

@confusedrf  said "We have 51K tuition, 23K scholarship  and 27K  529Plan distribution (Box 1 of 1099-Q)"

51K - 23K = 28K expenses - 4K (for AOC) = 24K for the 1099-Q.  27K - 24K = 3K more expenses needed for tax free treatment.  Surely, you have at least $3000 of food (living at home), books and computer expenses you can also use for the 1099-Q.   

Bottom line: you claim the AOC on your tax return and don't enter the 1099-Q on either return*. 

If you can't come up with $3000 more expenses, the taxable ratio is 3 / 27 = 11.1%.  0.111 x $7000 earnings (not basis) in box 2 (1099-Q) = $778 taxable amount (on student's tax return).

By the way, other than using $10,000 for the credit (instead of $4000), the calculations on the student info worksheet are basically correct, just complicated. 

*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. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

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." 

Poster's other threads:

https://ttlc.intuit.com/community/taxes/discussion/re-1099q-payments-from-qualified-education-progra...

https://ttlc.intuit.com/community/taxes/discussion/re-if-my-529-ran-out-and-i-ended-up-paying-toward...

https://ttlc.intuit.com/community/taxes/discussion/re-expenses-that-count-towards-4k-required-for-ed...

[confusedrf]

So if it put 10,000 in for the lifetime learning credit I thought that was only $1,000 why is it awarded me $2,500?

Nevertheless it sounds like I have three options....

One is to enter the queue on her return and somewhere in there put $778 as taxable income. Where would I put that?

The second option would be to delete the 1099q all together and not reported on either return and I guess if I get audited I just need to show that I had $4,000 in expenses which it sounds like you're saying is living at home?  Would that not raise a red flag that I'd reported both forms in the past and only the T form this year?

Would a third option be to leave everything the way I have it now? What would be the reality of the situation.. would it somehow know to look on her form to see it look for the Q for the 778 in taxable income?

[Hal_Al]

Q. So if it put 10,000 in for the lifetime learning credit I thought that was only $1,000 why is it awarded me $2,500?

A. YOU don't put $10,000. You put $4000.  Whether you put 10K or 4K, TT is going to give you $2500 (the max AOC).  The original problem was TT, not you, was putting 10K. 

Q.  I thought that was only $1,000. 

A.  No. that's something different (the refundable portion of the AOC). The LLC is $2000 max.

Q. It sounds like I have three options....One is to enter the queue on her return and somewhere in there put $778 as taxable income. Where would I put that?

A.  Not exactly.  You enter the 1099-Q on her return, but you don't PUT in  the $778. You let TT calculate the $778. This is also because you need TT to generate form 5329 to calculate the exception to the 10% penalty (yeah, I know, yet another wrinkle).

Q. The second option would be to delete the 1099q all together and not reported on either return and I guess if I get audited I just need to show that I had $4,000 in expenses which it sounds like you're saying is living at home?

A.  YES.  You only need to show $3000 of expense, not $4000.  Using the school's "cost of attendance" for board usually satisfies the IRS.  

Q. Would that not raise a red flag that I'd reported both forms in the past and only the T form this year?

A.  No.  The 1099-Q is low on the IRS priorities, due to so many  false flags in the past.  The reports, in this forum,  of IRS letters on the 10990-Q have dropped 90% in the last two years. 

Q. Would a third option be to leave everything the way I have it now?

A. It's not clear what that is, you have reported so many conflicting details. You last said the taxable amount was $2333. We know (I think) that's not right

Q. Would it somehow know to look on her form to see it look for the Q for the 778 in taxable income?

A.  No.  Nothing on your return is communicated to her return.  That's just a "red flag" to alert you to what to expect on her return.  You input everything correctly on her  return (including the $4000 you claimed for the AOC) to get TT to calculate $778 taxable on her return. 

Q. Is there another option?

A. Yes. Pay a professional to do your return(s).  You say this is your fourth year doing this.  Based on how confused you are, this year, you want a pro to review your past year returns. 

[confusedrf]

I went to a pro 2 years ago. Without even looking at anything they said they were sure I wouldn't qualify for anything once they saw my 529 was pretty much paying for everything except books. I mentioned her living at home and room and board then and they laughed at me. Perhaps they weren't such a good pro after all I don't know.

I made it through three of years I'll make it through this 4th year thanks for your help. Perhaps I'll just delete the Q forms and see what happens... My real question was whether room and board would justify the 4K and expenses all along. I've gotten conflicting advice on that all along. I have never put it in somehow always been awarded the credit and never noticed any taxable income until this year was created the further confusion.  I'm going to assume that having a student live at home would satisfy that 4K and I really should have had nothing to worry about all these years. I assume if they audit me I can just show that I neglected to put all that down and that would even things out at that time...

[confusedrf]

And thank you again HalAl... I do understand this a bit more than I have.. it's just a shame it's so **bleep** complicated.