IRS Audit, IRS Audit Help, Tax Audit

I Love Her – Can I Deduct Her?

February 14, 2013 - IRS Audit, IRS Audit Help, Tax Audit

    I love her. She lives with me. Can I claim her? It Depends.   In order to claim someone (whether male or female) as a dependent on your individual income tax return, there are questions that need to be answered. There are rules to follow. Of course! We are dealing with the Internal Revenue Service and the tax laws handed down by our lawmakers in Congress. First, you never claim your spouse as your dependent. Your marital status determines your filing status. I explained in an earlier blog that you may choose married filing jointly or married filing separately. Second, you can never claim a person who can be claimed as a dependent by someone else. The dependent must be a US citizen, US resident-alien, US national or a resident of Canada or Mexico. There may be an exception to this rule for certain adopted children. Third, the person you want to claim must be your QUALIFYING CHILD or your QUALIFYING RELATIVE. What does this mean?   The Tests for a Qualifying Child All five of these five tests must be met for Qualifying Child: 1. This child must be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them. So this child must be related to you. Notice that niece and nephew can qualify, but cousin cannot. 2. This child must meet one of these three age limits: A) be under 19 at the end of the year (and also must be younger than you or your spouse if you are filing jointly), B) be a student under age 24 at the end of the year (and younger than your or your spouse if you file jointly), or C) be any age if permanently and totally disabled. So a child who turns 19, is not a student, and is not permanently and totally disabled, is not going to quality as your dependent child. Jack has a son, Jerry, who is still in college but Jerry is 26 years old. Jerry still lives at home, but Jack cannot claim him as a dependent child because Jerry is over 24. 3. This child must have lived with you for more than half of the year. Your baby born alive during the year, or a child who died during the year, is considered to have lived with you their whole year. If you share custody with another person (maybe you are divorced or separated or never married), special rules apply to help determine which parent will claim the child. This is a great topic for a future blog. 4. This child must not have provided more than half of their own support for the year. What does this mean? Consider the costs to provide a roof over your heads and food on the table, clothes on his or her back, school tuition, books and supplies and the list goes on. How much money does your child earn? Could he or she have paid half or more of their own cost to live? Jerry (in the example at #2 above) made enough money to keep Jack from being able to claim him. Since Jack couldn’t claim him, Jerry got to claim himself on his own tax return. 5. This child is not filing a joint return for the year unless they are married and the only reason they are filing a tax return is to get a refund of income taxes withheld or estimated taxes paid.   The Tests for a Qualifying Relative You might want to claim someone besides a child. Can they meet these four tests for Qualifying Relative? 1. The person cannot be your qualifying child or the qualifying child of any other taxpayer. (If Jerry, above, was 25, lived at home and didn’t have an income, he s Jack’s son, is not a qualifying child, but might be his qualifying relative.) 2. The person must be related to you (as in qualifying child above), or must live with you all year as a member of your household, and your relationship must not violate local law. 3. This person’s income for the year 2012 must be less than $3,800 (this amount can change year by year) 4. You must provide more than half of the person’s total support for the year. There are exceptions for multiple support agreements, children of divorced or separated parents, parents who live apart, and kidnapped children.   This information is foreign to the average taxpayer, often referenced by the average tax preparer and comes direct from IRS Publication 17. If you have specific questions about your dependents, consult your tax advisor or post your question in the comment box. I’d love to consult with you. Always to your lowest legal tax, Nellie T Williams, EA