1098-T & 1099-Q Form

[Amanda44]

I need some assistance with a client that I have. Going to post the gist of their forms below.

1098-T: Box 1 - $10,089 & Box 5 - $2,500.00

1099-Q: Box 1 - Gross Distribution - $12,124.85, Box 2 Earnings - $2,578.92, Box 3 Basis - $9,545.93

The 1099-Q is in the Student's name and SS# - parents claim the student. 

They cannot take a credit for the expenses paid by the 529 MOST plan, correct? 

I've entered both forms in Proseries but it's not taking into account the 1099-Q form. How do I get it to do that?

[rbynaker]

Often the best approach is to first use the qualifying expenses for AOTC (if available).  So in your case maybe:

$10,089 QHEE
- 2,500 Scholarship
- 4,000 AOTC expenses for max credit
--------
$3,589 Remaining expenses
+????  Room & Board / other expenses allowed for 529 plan
--------
=????  Expenses allocated to 529 plan

If there aren't enough expenses, a portion of the 529 plan earnings may be taxable on the student's return (where you have to enter the data all over again to compute).

Rule #1 of 1098-T forms:  They're notoriously unreliable.  Have the client get a financial account report.

Rick

[TaxGuyBill]

The parents can claim an educational credit (if they otherwise qualify), but it will make more of the 529 plan taxable.  The earnings on the 529 plan are fairly low so I suspect that allocating $4000 to the American Opportunity Credit will have the best result (assuming the parents qualify for the credit).

The taxable portion will be on the student's return.

Find out the cost of room and board for the 529 plan - (1) actual costs and (2) the amount from the college's financial aid office for the "cost of attendance" for financial aid.

[TaxGuyBill]

Rick this is the second post in the last few minutes that you beat me by a few seconds.  😂

[rbynaker]

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@TaxGuyBill wrote:

Rick this is the second post in the last few minutes that you beat me by a few seconds.  😂

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Neener.

I'm running pretty slow today, have a sore throat and a bit of a head cold.  So you must be *really* slow!

But now that you're here, you can help with the "where do I enter" questions.  In Drake you do all the math yourself and just fill in the tax forms.  One of the things I miss about ProSeries is the Education Optimizer.

[Frustrated-in-IL]

Rick and Bill hit the details of how the taxation works.  All I can add there is if the total expenses before allocating any to the T are less than the amount withdrawn on the Q, then there will also be a penalty.  If you are looking for a more detailed example of how it works, try working through the search (I know, it stinks) as I have posted on this topic more times than I can count.

As to how you get the program to make it work, you have to link ALL the Q forms to the T.  It seems like in your case there is only one but you need to verify that.  Make sure the OWNER of the 529 did not also get a Q as that would also need to be part of this calculation.  That means it could be someone whose return you are not doing, like grandma.  In my opinion, the program handles the T and the Q calculations superbly.  You just need to make sure all the proper boxes are checked and that all Q forms from all 529 accounts for this student are linked to the T.  The program will compute the amount of taxable income and amount subject to penalty, if any, to every recipient of a Q.  This does sometimes result in a family blowout as the grandparents on the other side of the country already filed and now end up being told they have additional taxable income because mom and dad are claiming a tax credit.