I need help understanding how the timing of the AOTC and 529 disbursements work together so I can plan for this year's tax liability. Here are the details:
[1] The college sends the bill in December 2022, which I pay in January 2023. I wrongly assumed that this payment would (for AOTC purposes) count as a 2023 expense on our 1098-T. However, I've just been informed that it counts as a 2022 expense because the 1098-T reflects when an expense is billed, not paid.
**I did receive the full AOTC credit for 2022 -- the expenses were just a lot more than $4,000, and I didn't notice what was actually included on the 2022 1098-T.
[2] However, a 529 disbursement counts against the year when the expense is actually paid vs when it is billed. This means that the 529 disbursement I took in January of 2023 to cover the amount I incorrectly thought was a 2023 expense actually needs to match up with my later 2023 expenses.
I hope this makes sense.
So, let's say I receive a $10,000 bill in December 2023 (and for ease of argument, let's say that's my total 1098-T for 2023). However, I pay that $10,000 in January 2024. I want to pay $4,000 out of pocket to earn the AOTC, but then I want to take a 529 disbursement of $6,000 to cover the rest.
Giving the varying years coming from the same expense, will I have any issues with documenting this, or is there anything I need to be aware of? I can't remember if the IRS looks directly at the 1098T for 529 disbursements as they do (I think) with AOTC calculations -- because this feels like it could get confusing. I'm confused now as I'm typing.
Yes
No
