Prior Year Distrib-TP

[confusedrf]

I'm doing my daughter's tax return using TurboTax and it looks like again she qualifies for the lifetime learning credit .... this would be the second year. However this time upon review a screen popped up that says check this entry. It says interest income worksheet prior year distribution-tp must be entered and it shows a form where it seems to show the 1099Q distribution amount for this year from schedule Q and then it seems to want me to put in prior year distribution....???  So this year it's about 18K last year looks like it's about 15K ...is that what I'm supposed to type in and how will it affect anything?

[confusedrf]

..... And then it asks for excess contributions in 2024. What does that mean?

I put zero in for now but it recommends a re-review and then it asks for contributions made 2023 and earlier.. again what is this The sum of everything we put in the 529 plan I am lost? 

As an FYI I put in the 15K I mentioned in my first post and zero for the next two amounts mentioned in this post... nothing seemed to change after yet another review but I like to know what I'm supposed to put in there before I file.

[KrisD15]

If the distribution was used for paying education expenses, and the student (or the taxpayer claiming the student) is also eligible for an education credit, there are options. 

Part of the distribution can be claimed as income to free-up expenses for a credit.

It sounds like this is what's happening in your situation. 

(When you click "Maximize my tax break" TurboTax decides, you can search   letme    and change if desired) 

The program is asking the questions in order to determine your basis in the education savings account.

The 1099-Q shows earnings for the distribution, but the program wants to determine the earnings in the account balance. 

IRS Pub 970 page 45 explains the calculation 

[confusedrf]

All distributions have been edu expenses since inceptions 6 years ago...in fact money is running out!

So for the original prior year distrib to...I just put in the 15 that was in the 2023 Q, It corresponds to the 2024 18k on the Q form?

Still confused as to what these other 2 mean...

1)

excess contributions in 2024. What does that mean? Is that on the form...excess of what..we did not withdraw more than was used for edu ...should this be zero?

2)

it asks for contributions made 2023 and earlier.. again what does this mean..contrinutions?  Contributions to what..where do I get this info.  I am lost? 

[AmyC]

1. Excess contributions - did you make any contributions? I can understand the state asking about claiming contributions for a state credit.

For the federal and education credit, if a class was dropped that had been paid for by the QTP, it would need to be returned to the fund - otherwise, it could become taxable income.

The fact that you are entering the Q tells me some portion is taxable. The program is trying to figure out the portion.

2. Does your Q not have the basis listed?

Maybe a screen shot of the issue would help us or a little more information on where you are in the program.

It is really a shame that the whole Q can't go towards 529 for Room and Board  and Qualified Education Expenses - Internal Revenue Service. Then, it isn't entered and you don't have to try and figure out the taxable portion. 

IRS Publication 970, Tax Benefits for Education states:

If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form. Tuition paid for the first 3 months of the next year also qualify, see page 12, What Expenses Qualify, and page 52 for qualified distributions.

Page 45  repeats: Don't report tax-free distributions (including qualifying rollovers) on your tax return.

[confusedrf]

So after the interview upon reviewing my tax situation before filing it popped up this form the interest income worksheet and wanted me to fill in prior year distribution which I'm assuming is the counterpart to the 18K that appears in line 7A. 

But then it also wants me to fill in lines 7C - contributions made in 2023 and earlier as qell as line 7D - excess contributions in 2024... and I have no clue what to put in there. 

We made no 529 contributions last year and I'm not sure what excess contributions even mean for 2024.

[AmyC]

You claim not to have  done anything that requires an entry. Your distribution did all go to qualified expenses. You should delete the Q from the program and tuck it into your tax folder. All your problems go away and you can file with ease.

The IRS doesn't want to deal with it. IRS Publication 970, Tax Benefits for Education states on 

page 45 : Don't report tax-free distributions (including qualifying rollovers) on your tax return.

[confusedrf]

I can try that but when I did it last year that lifetime credit went away! I'll save a copy and try it though. 

Nevertheless what would I enter for those two values?

[AmyC]

The credit should not go away. All the education information stays in the program. The tuition, books, all the rest stays.

I entered a Q and tuition and go nothing taxable, no problems. Then,  I looked at your form and see that it says NON educational purposes. You must have hit a button somewhere that you should not have.

See below,  mine says qualified educational expenses.

[confusedrf]

And I do see where you show it says non-qualified expense. The whole thing is weird because I think if you do the math no matter what I put in for any of those values I think is going to result in a zero in 7 g... I think I'm going to try a new return from scratch.

[confusedrf]

However... While it says non-educational The ride getting you there indicates otherwise... I found the screen where it prompts me for these three values it pops up after it says you have the following qualified deductions from your federal form....

It brings the info in from the federal return. then on the next screen ask you enter information about qualified education plan distributions... As you do this you see the little form shown on the same page start to fill in... Note it appears in section 7 which suddenly says non-qualified expenses!!!

Seems to contradict itself and makes no sense ....feels like a software bug? I've always entered the Q&T forms ...this is my sixth year doing so. You should be able to enter them and the software should be able to properly handle them.

If I honestly had 18K total distribution from form Q and the amount used was the full 18K does that not make taxable income amount line 7g...zero ....no matter what I put in for the other three lines because you can't have a negative taxable amount right?  See formula 7g  =7a-7b-7f... In other words 7a - 7b is zero so itdoesn't matter what 7F is....etc.

Still I'm not happy about this showing up under non-qualified to begin with but...

Can I just leave this as is and file my return or is this going to cause some sort of issue?

[confusedrf]

I'm going to close this post. I think I'm okay now. I may open another post for others in this quagmire since the software is pretty much horrible when it comes to interviewing you for education expenses etc. 

Amy you were correct. I deleted everything and started from scratch and when it prompted me about the Q form I said no but did enter the T form which is a bit of another story ...trying to find it etc... and enter the T info. 

At that point essentially I had $2,000 added to my tax refund which I believe was from the life time learning credit. 

However... I have entered the Q  for 6 years... right or wrong ...and I was determined to enter it again. Whether I've left money on the table for 6 years or not I don't know but I wanted to be consistent. Bottom line when you put that Q form in... at least for me it results in me losing a few bucks because I believe it's taking a portion of the 18K used for education expenses and I believe it'sallocating  $1k for that credit to get the $2k LLC.. but then that  leaves a little bit of money that I distributed taxable.  Thus I lose a few bucks of my refund. Now this may be where people get into entering room and board and whatnot but I've never done that. Perhaps I should have perhaps I would have got back an extra 50 bucks or so each year I'm not sure.

So which number is technically right and which number is wrong...?  I believe this is where people say you can put room in board and what not and keep those few dollars... I've never done that so I'm going to be consistent and perhaps error on the side of being a little conservative.

For now I'm leaving at be... it's still prompted me on that one form for the 2023 and prior distributions and I left it blank... mathematically it does does not seem to impact the value on that form and I'm not even sure if that form is part of the tax return. 

I know everybody's sick of this at this point I'm not sure if this makes sense but unless somebody sees something glaringly wrong I'm moving ahead and filing.

[BrittanyS]

Yes, if you had room and board or other qualifying expenses, you can enter that information to reduce the remaining taxable income from the 1099Q.  This will reduce what is being calculated as taxable income.  As long as you have qualified expenses to add such as room and board, it is okay to add those items in to reduce the taxable income.  

For more information see the link below:

• 1099-Q