In the eyes of the IRS, “dependent” can mean much more than a biological child who lives with you.
Numerous individuals may depend on you for financial support. You might be sending money to a niece to help her through college or occasionally paying bills for an aging parent. And there are always those college kids who need extra money sometimes for books and activities and clothes.
Can you consider them “dependents” on your income tax return if you send them funds on a regular basis?
The IRS goes beyond the “nuclear family” when it defines the entry on your Form 1040, but there are limits. Here’s who you can’t claim;
- Anyone who is not a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Mexico or Canada
- A married individual who is filing jointly as a dependent (exception granted if the person is only filing if he or she is requesting a refund of estimated or withheld tax paid)
- Anyone – if someone is claiming you (or your spouse, if you’re filing a joint return) as a dependent
Note: As with many things IRS, there are exceptions to most rules. Questions? Ask us.
You can, however, claim a Qualifying Child as a dependent on your income tax return. In order to do so, the individual must:
- Be your son, daughter, stepchild, foster child, brother or sister, half-brother or –sister, stepbrother or stepsister – or a descendant of anyone in those relationships.
- Be younger than 19 at year’s end (and younger than you) or a student who is younger than 24 at the end of the year (and younger than you) or totally/permanently disabled (any age).
- Have resided with you for more than 50 percent of the year.
- Have depended on you for support; can’t have been responsible for greater than 50 percent of his or her own annual support.
- Not file a joint income tax return for the related tax year (unless only to claim a refund/withheld or estimated tax paid).
Keep in mind, too, that an individual can only be considered a Qualifying Child by one person. The IRS has rules for determining who can claim the child. If you’re in this situation, we recommend you let us help you sort this issue out.
You may also be able to claim a Qualifying Relative as a dependent. This individual must be living with or related to you, but not be anyone’s Qualifying Child. He or she must bring in less than $4,050 in annual gross income, and be supported—usually, more than half—by you.
A Complex Issue
As you might guess, there are numerous other IRS rules legislating the claiming of a dependent on your income tax return. We’re available to address this issue and any others related to your taxes.
As we close out the 2017 calendar year, we’d like to first wish you a very pleasant holiday season. We’d also like to get in some reminders of the financial tasks you should be doing in December before the tax year ends. Have you, for example:
- Made all charitable donations?
- Combed through your Accounts Receivable to see who needs follow-up?
- Paid all bills through the end of the year, and reimbursed any expenses due?
- Paid all payroll taxes?
- Paid all estimated taxes?
- Worked on your 2018 budget?
- Paid all you intended to into retirement accounts?
Year-end is a good time to create the critical accounting reports you need to keep a close watch on your financial status (Balance Sheet, Cash Flow Forecast, etc.). If you haven’t been doing this regularly, and even if you have, you need to do so as we get ready to welcome 2018.
This is fairly easy to do if you’re using accounting software, but these reports can be difficult to interpret and analyze. We’ll be happy to step in and take care of these for you. We look forward to working with you in 2018!