Your Tax Question - 006b

This is a continuation from - Your Tax Question - 006a...
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Wendel, You should also consider who is your Qualifying Relative for determining who is your dependent as an exemption on your taxes. People who failed to meet any one of the Qualifying Child Tests, you may find that they do qualify as a Qualifying Relative. A Qualifying Relative must satisfy just four tests:

1. The Relationship Test
2. The Gross Income Test
3. The Support Test
4. The Dependency Test

1. The Relationship Test

• A child or decedent of said child
• Sibling or step-sibling
  
• Parent or decedent of either
• Step-parent
• A sibling's child
• In-Laws (son, daughter, mother, father, brother, sister)
• any individual who shares the sajme principal abode as the tax-payer

2. The Gross Income test

• Must have less than $3,650 of income

3. The Support Test

• Over half of the dependent's total support for the year must have been provided by the tax-payer.
• Special rules apply for multi-support agreement for children of divorced persons.

4. The individual must not have been the qualifying child of anyone else during the year. All in all, many people qualify to be your dependent if they have lived in your home for the year but then the Gross Income and Support Tests may bump them out as easily as they qualified. Be sure to discuss all of this with your tax professional. Best to you, John
PS. If you don't have a tax professional yet, be sure to contact me about how you can get on my client list. Email me

Your Tax Question - 006a

Dear John, Since the downturn in the economy my household has grown and I now have more people living in our home. My wife's 12 year old son moved in with us after his father lost his job and could not afford to keep him, my brother-in-law and his family moved in a few month's ago after he lost his house, and my great-uncle has moved in with us. (It is a zoo around here.) What sorts of things do I need to consider when tax time rolls around? Thank you, Wendel
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Dear Wendel,

I remember seeing the movie "Cheaper By The Dozen" and thinking that it would be great to have a busy house - I cried 'Uncle' after the third child.

Your question has many things that a tax expert would need to discuss with you - I highly advise this. However, I want to take this opportunity to explain 2 issues that you will need to consider for this tax season. With all of the people that you describe as living in you home you may be able to claim all or some of them as your dependent. There are 2 basic types of dependents available to you: Qualifying Child & Qualifying Relative.

First, Qualifying Child: There are 5 test that ned to be met before a child can be considered your dependent.

1. Relationship Test
2. Age Test
3. Principal Place of Abode Test
   
4. Support Test
5. Join Return Test

1. The relationship test is very liberal for who is your dependent as a child.

• Your child, step-child, or decedent of either a
• Your sibling, step-sibling, or decent of either satisfies the relationship test.
  
• This also include foster or adopted children as well.

2. The Age test stipulates that a child:

• Be younger than the taxpayer
• Younger than age 19 (or a full-time student under 24 years of age)
• This test is suspended for anyone who is permanently disabled at at anytime during the year.
  

3. The Principal Place of Abode Test:

• More than one-half of the year.

4. The Support Test:

• Must not have provided for more than 1/2 of there support for the year.

5. The Joint Return Test:

• The dependent must not have filed a Joint Return with their spouse except as a claim for refund.

A big thing to consider is that no child is claimed twice. The IRS frowns on this and will determine who the rightful claimant is dependent on their standard known as the "Tie Breaker Rules".

These are the basics of claiming a person as a Qualifying Child for dependent status. In the next post I will continue answering your question as I will describe who is a Qualifying Relative.

John

PS. I highly suggest talking through the issues with a tax professional - Email me.