Carol McAtee & Associates, CPAS
Seven Facts about Dependents and Exemptions
There are a few tax rules that affect everyone who files a federal income tax return. This includes the rules for dependents and exemptions. These seven facts about dependents and exemptions will help you when you file your taxes this year.
1. Exemptions lower your income. There are two types of exemptions: personal exemptions and exemptions for dependents. You can usually deduct $3,950 for each exemption you claim on your 2014 tax return.
2. Personal exemptions. You can usually claim an exemption for yourself. If you’re married and file a joint return you can also claim one for your spouse. If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.
3. Exemptions for dependents. You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative that meets certain tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim.
See the two articles following this one for some more detailed information on claiming dependents of your tax return.
4. Some people don’t qualify. You generally may not claim married persons as dependents if they file a joint return with their spouse. Again, there are some exceptions to to this rule.
5. Dependents may have to file. People that you can claim as your dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.
6. No exemption on dependent’s return. If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person as a dependent on your tax return. The rule applies because you have the right to claim that person.
7. Exemption phase-out. The $3,950 per exemption is subject to income limits. This rule may reduce or eliminate the amount depending on your income.
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From TurboTax’s Update for 2014….
Can I Claim a Boyfriend/Girlfriend As a Dependent on Income Taxes?
OVERVIEW
You can claim a boyfriend or girlfriend as a dependent on your federal income taxes if that person meets the Internal Revenue Service’s definition of a “qualifying relative. Don’t get tripped up by the word “relative” here — according to the IRS, it can include an unrelated person who passes the four following tests concerning residency, income, support and status.
Is your partner an official resident?
Your boyfriend or girlfriend must be a member of your household, meaning that he or she lived with you for the entire calendar year.
The law makes exceptions for temporary absences, such as vacations and medical treatment, but your home must have been that person’s official residence for the full year. However, if your living situation violates local law, you cannot claim that individual as a dependent. In some states, “cohabitation” by unmarried people is against the law.
How much does your partner earn?
If your boyfriend or girlfriend has gross income above a certain amount, you cannot claim that person as a dependent.
Gross income is any income from any source that’s subject to tax, whether it’s wages, interest on a bank account or other types of taxable income. The limit for gross income limit varies from year to year; for the 2014 tax year, the income limit was $3,950.
How much money do you spend on your partner?
You must have paid more than half of your partner’s living expenses during the calendar year for which you want to claim that person as a dependent.
When calculating the total amount of support, you must include not only money received from you and other people but also from the individual’s own funds. In other words, if your partner took money from a savings account to pay for food, housing or other living expenses, and the total amount withdrawn is more than half of the person’s living expenses, you cannot claim that individual as a dependent.
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Claiming an Elderly Parent as a Dependent
Are you taking care of an elderly parent or relative? According to the U.S. Census Bureau, there were 43.1 million people age 65 and older in the United States in 2012, nearly 15 percent of the total population.
Whether it’s driving to doctor appointments, paying for nursing home care or medical expenses, or handling their personal finances, dealing with an elderly parent or relative can be emotionally and financially draining, especially when you are taking care of your own family as well.
Fortunately, there is some good news: You may be able to claim your elderly relative as a dependent come tax time, as long as you meet certain criteria.
Here’s what you should know about claiming an elderly parent or relative as a dependent.
Who qualifies as a dependent?
The IRS defines a dependent as a qualifying child or relative. A qualifying relative can be your mother, father, grandparent, stepmother, stepfather, mother-in-law, or father-in-law, for example, and can be any age.
There are four tests that must be met in order for a person to be your qualifying relative: not a qualifying child test, member of household or relationship test, gross income test, and support test.
Not a Qualifying Child
Your parent (or relative) cannot be claimed as a qualifying child on anyone else’s tax return.
Residency
He or she must be U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico; however, a parent or relative doesn’t have to live with you in order to qualify as a dependent.
If your qualifying parent or relative does live with you, however, you may be able to deduct a percentage of your mortgage, utilities and other expenses when you figure out the amount of money you contribute to his or her support.
Income
To qualify as a dependent, income cannot exceed the personal exemption amount, which in 2014 is $3,950. In addition, your parent or relative, if married, cannot file a joint tax return with his or her spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.
Support
You must provide more than half of a parent’s total support for the year such as costs for food, housing, medical care, transportation and other necessities.
Claiming the Dependent Care Credit
You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.
In addition, expenses you paid for the care of a disabled dependent may also qualify for a medical deduction (see next section). If this is the case, you must choose to take either the itemized deduction or the dependent care credit. You cannot take both.
Claiming the Medical Deduction
If you claim the deduction for medical expenses, you still must provide more than half your parent’s support; however, your parent doesn’t have to meet the income test.
The deduction is limited to medical expenses that exceed 10% of your adjusted gross income (7.5% if either you or your spouse was born before January 2, 1949), and you can include your own unreimbursed medical expenses when calculating the total amount. If, for example, your parent is in a nursing home or assisted-living facility. Any medical expenses you paid on behalf of your parent are counted toward the 10% figure. Food or other amenities however, are not considered medical expenses.
What if you share care-giving responsibilities?
If you share care-giving responsibilities with a sibling or other relative, only one of you–the one proving more than 50 percent of the support–can claim the dependent. Be sure to discuss who is going to claim the dependent in advance to avoid running into trouble with the IRS if both of you claim the dependent on your respective tax returns.
Sometimes, however, neither caregiver pays more than 50%. In that case you’ll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10% percent of the support towards taking care of your parent.
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
