Things to consider for your tax return
Most of us with children know the rules for claiming a dependent on our taxes while our children are young. After all, they aren’t earning an income and if they are, it’s minimal. We provide for their basic needs; food, clothing, shelter, school supplies, and more.
But, what happens when your child graduates from high school? If they are working full-time and not attending school, do you still claim them? What about if they’re off at college or working and attending school? Here are some of the things you should know about claiming your college-age dependent on your taxes.
The Basics
The general rule behind claiming dependents is if a person receives the majority of their financial support from a taxpayer, then that taxpayer can claim that person as a dependent. Financial support includes not only money, but food, housing, clothing and tuition payments. If the student received a scholarship but is still dependent on his or her parents for spending money, car insurance, etc., they are considered a dependent. If the child provided more than half their own support for the year, they are no longer considered a dependent.
Be careful here. If your child takes out a student loan in his or her own name, it counts as supporting themselves financial. However, if a loan is taken out in the parents’ name it’s considered support provided to the student by the parents. And, if the student has a savings account but did not spend any of that money on their expenses it’s not considered providing their own support.
At some point it may come down to choosing whether to claim your older child as a dependent or not. The rules are simple here. The child must be under age 19 at the end of the year or under 24 and a full-time student for at least five months of the year.
The Tricky Parts
So, you’ve determined your college-age child qualifies as a dependent. Now if your dependent is married and files a joint return, you may not claim them as a dependent unless the only reason they filed a joint return was to get a refund. If your student earned their own income while in school and also qualifies as your dependent, they still may have to file a tax return. There is an income limit on who must file a tax return. In 2009, if the single child had earned income of more than $5,700 or unearned income of more than $950, the dependent must file a tax return. However, if you claim your student as a dependent they may NOT claim themselves on their own return. The opposite is also true; if your student files their taxes and claims an exemption for themselves, you may not claim them as an exemption on your return even if you qualify to do so.
Even if their income is below the limit set by the IRS it may still be beneficial for them to file a return in order to get a refund. Again, if you’ll be claiming them as a exemption be sure they don’t do the same on their return.
Other Deductions to Consider
As mentioned previously, any loans taken in the student’s name count as the child’s own financial support. If a student’s parents take the loan, not only is it considered support provided by the parents but the parents also get the deduction for paying the loan back. But what if Mom and Dad pay back a loan that’s in the student’s name? Even if a student claims themselves as a deduction, but their parents paid the interest on their student loans, the student can claim the interest paid as a deduction. The IRS treats it as money given to the student who, in turn, paid the loan.
The rules for claiming a college-age dependent can be tricky. Your best bet is to weigh out the options and calculate the benefits of claiming them on your taxes or allowing them to claim themselves.
Check out www.efiletaxreturns.com for more articles on preparing and filing your taxes.
