TAX TIP No. 6
Your son is off at college. Can you still claim him as a dependent? The answer for most parents is "yes." But, as is often the case with tax questions, determining who can be claimed as a dependent is not always a clear-cut exercise.
Dependent claims aren't limited to parents. An adult relative could qualify as a taxpayer's dependent as long as he or she meets certain Internal Revenue Service conditions.
Making sure the requirements are met is critical, because dependents can help reduce your tax bill. In many cases, you can claim certain tax-cutting deductions and credits related to a dependent. The key tax breaks associated with a child are the child tax credit, the child and dependent care credit and the earned income tax credit.
Even if these added tax breaks don't apply to your situation, a dependent named on your return can still trim your taxes. Each dependent directly translates into an exemption, a specific dollar amount deducted from your adjusted gross income.
The exemption amount is adjusted annually for inflation and can be found on your tax return form. On 2009 returns, each exemption allows a filer to cut taxable income by $3,650. By lowering your taxable income, your tax bill usually is a little less.
In this tax tip:
- Child dependent tests.
- Tie-breaker guidelines.
- Final exemption factors.
Child dependent tests
In order to claim a child as your dependent so that you can use the $3,650 exemption, as well as gain other potential child-related tax breaks, the youngster must now meet four tests:- Relationship test: The child must be your child, either by birth, adoption or by being placed in your home as a foster child. Even if the adoption isn't yet final, if the child is living with you and the process is under way, it counts. A dependent child can also be your brother, sister, stepbrother, stepsister or a descendent of one of these relatives.
- Residency test: The child must live with you for more than half of the year. If the youth is away temporarily for special circumstances, such as for school, vacation, medical treatment, military service or detention in a juvenile facility, these particular absences still count as time lived at home. A child who was born or died during the year is considered to have lived with you for the entire year if your home was the child's home for the entire time he or she was alive during the year.
- Age test: A child must be under a certain age depending on the particular tax benefit. For the dependency exemption, the child must be younger than 19 at the end of the year. However, a youth who was a student at the end of the year can be claimed as long as he or she is younger than age 24. There is no age limit where the individual is permanently and totally disabled.
- Support test: This refers to the youngster's contributions, not those of adults in the family. To qualify as a dependent, the child cannot provide more than half of his or her own support during the year.
The support issue usually is not a problem. However, if the child is a successful model, for example, he or she could bring in substantial income and therefore might not be able to be claimed as a dependent under this test. Even then, as long as the parents provide more than the youngster is bringing in, then the child would still qualify.