How to lessen the tax liability, so you can keep as much profit in your pocket as possible.
Dependent is a money term you need to understand. Here’s how it works.
What is a dependent?
A dependent is an individual supported financially by another.
Dependents are generally spouses and unmarried, adopted, foster, biological or stepchildren. But they can also be relatives or roommates.
For tax purposes, a child has to meet certain tests to qualify as a dependent. The relationship test requires that the dependent be a biological child, stepchild, foster child or adopted child, or a sibling or step-sibling, nephew, niece or grandchild.
As a dependent, a child must also meet other tests, including the residency test (minimum six months a year with the claiming taxpayer); age test (under age 19, or under 24 if away at college); support test (child provided less than half of his or her own support).
There are certain exceptions to the rules. For example, for disabled persons, the age test does not apply. The residency test is also waived in certain circumstances.
For tax purposes, qualifying relatives can also be dependents. They, too, must meet certain tests. For instance, they cannot be the taxpayer’s qualifying child, nor can they be anyone else’s dependent.
Qualifying relatives should be related to the claiming taxpayer or, if not related, have lived with the taxpayer for the full tax year. And the taxpayer should have provided more than half of the dependent’s support. In addition, the qualifying relative’s income cannot exceed the exemption amount, which in 2017 is $4,050.
Qualifying relatives do not necessarily have to live with the claiming taxpayer, but again, they must meet certain tests. Such relatives who live elsewhere include a grandchild, sibling, step-sibling, step-parent, nephew, niece, uncle, aunt or any in-law, even after a marriage ends in divorce or death. And again, qualifying relatives must meet certain other tests.
More From Bankrate
6 min read Aug 25, 2022
If you haven’t filed your taxes yet, don’t panic — but act fast.4 min read Apr 19, 2022
Typically, taxpayers have two options: Take the itemized deductions or take the standard deduction.3 min read Apr 18, 2022
Regardless of what may cause a person to miss the tax-filing deadline, there are potential consequences.5 min read Apr 18, 2022
Applying for more time to file your taxes is easy. Just don’t put off paying your tax bill.3 min read Apr 15, 2022
The fast-approaching deadline for filing your 2021 taxes is April 18, 2022.2 min read Apr 11, 2022
There are seven tax brackets for most ordinary income: 10%, 12%, 22%, 24%, 32%, 35% and 37%.4 min read Apr 07, 2022
The credit was confusing even before Congress revamped it for 2021.7 min read Apr 01, 2022
Here’s how to use a Roth IRA to pay for your child’s college tuition.4 min read Mar 28, 2022