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It's summer of 2013, It been about 30 to 40 days since your 21 year old experienced the biggest day of his or her life. The celebration of college graduation, family parties and travel have come to an end. Is your college grad still on your couch? In our continuing effort to educate the general public of the "dos and the no can dos" of pesonal income taxes for the upcoming tax season. More importantly a taxpayer currently non compliant with the IRS or state department of revenue. Two types of exemptions exist; Personal exemptions and dependency exemptions. The single taxpayer receives one personal exemption while the married couple filing jointly receives two. A person can be claimed as a dependent if he or she is a qualifying child or qualifying relative and meets the following three tests. 1. Dependent taxpayer test. The taxpayer cannot claim anyone else as a dependent if the taxpayer can be claimed as a dependent by another person. 2. Joint Return Test. A taxpayer is not allowed an exemption for a dependent if he or she files a joint return. Exception: The dependent filed a joint return merely as a claim for refund and no tax liability would exist for either spouse on separate returns. 3. Citizen or Resident Test. To meet this test, the person must be a U.S. citizen or resident, or a resident of Canada or Mexico, for some part of the calendar year. Qualifying Child. The following are the five tests that must be met for a child to be a qualifying child. 1. Relationship Test. To meet this test, a child must be: a) A son, daughter, stepchild, eligible foster child, or a descendant (e.g., grandchild) of any of them, or b) A brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (e.g., niece or nephew) of any of them. 2. Age Test. To meet this test, a child must be: a) Under age 19 at the end of the year, b) A full-time student under age 24 at the end of the year, or c) Permanently and totally disabled at any time during the year, regardless of age. 3. Residency Test. To meet this test, a child must have lived with the taxpayer for more than half of the year. There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents. A child is considered to have lived with the taxpayer during periods of time when either the taxpayer or child or both, are temporarily absent due to special circumstances such as illness, education, business, vacation, or military service. 4. Support Test. To meet this test, the child cannot have provided more than half of his or her own support for the year. 5. Joint Return Test. To meet this test, the child cannot file a joint return for the year. Exception. The joint return test does not apply if your child and his or her spouse file a joint return merely as a claim for refund. c) If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. d) If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the parents. Qualifying Relative. There are four tests that must be met for a person to be your qualifying relative. 1. Not a qualifying child test. A child is not a qualifying relative if the child is the taxpayer’s qualifying child or the qualifying child of anyone else. 2. Member of household or relationship test. To meet this test, a person must either: a) Live with the taxpayer all year as a member of your household, or b) Be the taxpayers child, stepchild, eligible foster child or a descendant of any of them, sibling, step-sibling, half-sibling, parent, step parent, foster parent, any of these relationships established through marriage (in-laws), uncle, aunt, niece, and nephew. 3. Gross income test. To meet this test, a person's gross income for the year must be less than $3,650. 4. Support test. To meet this test, a taxpayer must provide more than half of a person's total support during the calendar year. What to do about the college graduate on the couch? Either they go back to school to obtain their masters degree or parents need to set a deadline for the graduate to acquire a job, hopefully a job they enjoy and work with passion. One thing is for sure, the college grad is no longer considered a dependent. For speedy 24 to 48 hour completion of multiple years of tax returns please call 1 - 8 6 6 - 2 2 6 - 6 1 0 2 for a 20 minute conversation to understand the nuances of your tax account. You be glad you did! Get this tax thing handled correctly the first time around.
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