Preface: Dependent exemptions are not always addend, addend = sum. This blog presents ideas to minimize taxes for certain individual taxpayer situations.
Who Is my Dependent?
Credits: Jake Dietz, CPA
Whom can I claim on my tax return as a dependent? Perhaps you find yourself asking this question when preparing your tax information to give to your accountant. Some situations are very clear and common, but other situations take more work and research to determine. The IRS has detailed instructions, and this article will examine generally some of the qualifications but will not delve into all the complexities. To claim someone as a dependent on your tax return, they must either be your qualifying child or qualifying relative.
A qualifying child is generally your child or sibling, or a descendant of your child or sibling. The qualifying child must have been either under age 19, under age 24 and a student, or disabled. The child cannot have paid more than half the cost to support themselves. Generally, the child must have lived with you more than half the year. There are also some other considerations before the child can be considered your dependent, including if you could be claimed by another person, and if the child were married.
There is no income limitation for a qualifying child. You could have a 17-year-old child living at home making more money than his parents, but the child could still qualify if he did not pay more than half the cost to support himself.
Someone who does not fit the requirements to be a qualifying child might be your qualifying relative. Qualifying relatives could be your children along with their descendants, your siblings along with their children, your parents along with their siblings and ancestors, in-laws, stepparents, stepsiblings, or an unrelated person who lived with you all year. Generally, you must provide more than half their support. The qualifying relative also must have made less than $4,050 in most situations.
First, let’s look at housing for these relatives that might qualify. They do not have to live with you, although they may live with you. For example, let’s suppose your elderly aunt lives in a house rent-free on your second farm. If she makes less than $4,050 and you provide over half her support, then you may be able to include her as a dependent.
Another scenario that you may encounter is an elderly father who would be a qualifying relative, except 3 of his children take turns providing for him. No one provides over half his support. In this case, there can be an agreement signed where one of the children can claim him.
Another interesting example of a qualifying relative would be someone who is not related to you but lives with you all year if you provide over half her support. Suppose there is an elderly lady in the community who has no income and no family to provide for her. You invite her into your home to live, and you provide for her. If she lives with you all year, then she may be your qualifying relative.
There is also an exception to the $4,050 rule for people with disabilities. If the person has a disability but earns more than $4,050 at a workplace for people with disabilities, then the $4,050 income test may be waived for that income.
As we examine scenarios and some of the rules that go into determining who is a dependent on your tax return, it may become obvious that this decision can take some careful analysis. This article is general in nature and only explores some of the qualifications. Please consult with an accountant about your specific circumstances before making a final decision.