Lee B Posted March 31, 2022 Report Share Posted March 31, 2022 I only have one client with a 529 Plan. If the qualified educational expenses exceed the total distribution, then there is no reporting requirement? TIA Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 31, 2022 Report Share Posted March 31, 2022 In the cases I've had, the parent's income was too high for any education credit so that made it easier for me. The screenshot below is the explanation that I've attached to the return as a pdf. On the student/child's return, I report the earnings as other income and then the same amount is backed out as nontaxable resulting in no earnings being taxed. Your case may be different. 3 Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 31, 2022 Author Report Share Posted March 31, 2022 Well in my case, it was the last term of Community College and the total distribution was about $ 500 Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted April 1, 2022 Report Share Posted April 1, 2022 Since the qualified education expenses exceed the total distribution, shouldn't you still report the earnings as income and then back the earnings amount out as "Qualified Education Expenses"? I've done it that way for years and I've never had an issue. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 1, 2022 Report Share Posted April 1, 2022 2 hours ago, Yardley CPA said: Since the qualified education expenses exceed the total distribution, shouldn't you still report the earnings as income and then back the earnings amount out as "Qualified Education Expenses"? I've done it that way for years and I've never had an issue. Yes, if the AQEE exceeds the distribution, then the earnings are tax-free, but if they are taxable, they'd be reported on 1040, Sch 1, line 8z. As I said in my earlier post, that is why I put them on and then back them off with a negative number that brings the taxable portion to -0-. That way if the IRS' AUR was to match up the 1099Q, it is on the return as is my pdf attachment of explanation. 2 Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted April 1, 2022 Report Share Posted April 1, 2022 12 minutes ago, jklcpa said: Yes, if the AQEE exceeds the distribution, then the earnings are tax-free, but if they are taxable, they'd be reported on 1040, Sch 1, line 8z. As I said in my earlier post, that is why I put them on and then back them off with a negative number that brings the taxable portion to -0-. That way if the IRS' AUR was to match up the 1099Q, it is on the return as is my pdf attachment of explanation. Judy...thanks for the reply. I have never attached a pdf statement but it certainly makes sense as an additional means of explanation. Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted April 1, 2022 Report Share Posted April 1, 2022 You also have to reduce the tuition expenses by the amount of tax free income on the 1099Q before calculating any education credits. Quote Link to comment Share on other sites More sharing options...
Lee B Posted April 1, 2022 Author Report Share Posted April 1, 2022 The Tax Book says, "Distributions are not taxable if they are less than the beneficiary's adjusted qualified expenses for the year. Nontaxable distributions are not reported." I will go with this advice. Thanks, everyone 1 Quote Link to comment Share on other sites More sharing options...
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