My client has 3 children in college, all who have received distributions from a Sec 529, as reported on the 1099-Q.
We have input the tuition expenses from all 3 1098-Ts, as well as books and room/board expenses.
The client is not receiving any educational tax credits due to income phaseout. One student received a scholarship amount.
Schedule 1 LIne 8 of Pro-Series is showing $22K in taxable income. In addition, Form 5329 is showing $13K in non-qualified expenses subject to the 10% penalty.
I don't buy this. This is not consistent with the Tax Code. Total earnings (not distr's) from all 3 1099-Qs = $36K. Total education expenses net of scholarships for all 3 kids = $26K.
To me it seems as if only $10K should be taxable, with NONE subject to the 10% penalty.
This can't be right! Am I entering something wrong? Is the software not calculating correctly? I'm not sending out this return with these numbers!
You’re correct. It’s certainly sounds wrong and you’re probably entering something(s) incorrectly.
if I’m reading this correctly there should be no impact on the tax from the 529s or education credits. If so, delete all the education info... start with the 1098ts and dependent worksheets that you have the correct result. Then work on the Qs...keep an eye on the refund monitor to see the entry(s) that are giving you trouble.