Discussion:Young Adult non-dependent child
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Discussion Forum Index --> Basic Tax Questions --> Young Adult non-dependent child
Discussion Forum Index --> Tax Questions --> Young Adult non-dependent child
| 3 February 2008 | |
| I have seen and heard this talked about at different seminars. Wealthy family, 2 kids (one young adult and not a dependent and lets say a 14 year old). The young adult child has earned income of $20,000 with a child of her own. She is entitled to the dependency deduction for her child (and EIC et al). Now the seminars note a loophole which I don't think has been closed yet. The young adult child can also claim the 14 yr old as a dependent. This will kick additional child credit and extra EIC. It is substantial. Go look for yourself...its all there. But lets change the scenario only slightly. The family has a modest AGI of $100,000. I don't see why this scenario won't work for them also.
Any comments or "oh-oh's" would be helpful. Thanks. | |
RoyDaleOne (talk|edits) said: | 3 February 2008 |
| Check your dependency exemption requirements. | |
Westerntreks (talk|edits) said: | 3 February 2008 |
| Actually doesn't a minor sibling meet the dependency requirements as long as both siblings live in the same house; the minor sibling doesn't furnish 1/2 or more of his/her own support; the minor sibling meets the age test, and the parents don't claim the minor sibling as a dependent. I don't see a requirement for the TP to furnish 50% support for claimed dependents. (The Taxbook & J.K. Lasser's)
Wealthy parents lose the exemption to AMT - modest parents not caught-up in the AMT debacle might find it best for them to keep the minor sibling exemption. | |
| 3 February 2008 | |
| I don't have time to look this up right now but I am pretty sure this will still work. I have been hoping to be able to pull this off but still haven't found one yet. It is in the back of my mind when doing a interview. | |
RoyDaleOne (talk|edits) said: | 3 February 2008 |
| Parent not claiming does mean anything per se.
If no one does more then 50% then multiple support agreement. If the parents can claim the child and don't the no one gets the child. | |
| 4 February 2008 | |
| Taxstick, I see no problem with what you are prosposing. There was an article in the Wall Street journal suggesting that this was an unfair application of the law; however, it is legal. | |
| 4 February 2008 | |
| Roy, remember the rules have changed. To meet this test to claim a qualifying child as a dependent you don't have to provide over 50% support, the support test only says that the child cannot have provided more than half of his or her own support for the year. And a qualifying child can be a sibling. | |
| 4 February 2008 | |
| Agreed; the rules have changed regarding dependents and now the rule is qualifying child/relative. In fact there is much flexibility in determining who takes the dependency deduction. As long as there are no disagreements, the tie-breaker rules don't come into play. And when they don't come into play, then there are advantages for claiming. I think my scenario fits. I certainly see it happening for high-AGI clients...but for routine tax returns...I was just a bit shocked that it hits the home run for my client. It really looks funny for the older child to claim her younger brother (and her child also). Even the client looks at me sideways when I explain this to them. There may be only one thing to consider and that would be the tax rebates they are talking about. But at $300 per child...its still less than the advantages my client is receiving now. | |
Death&Taxes (talk|edits) said: | 4 February 2008 |
| With the elimination of limits for deductions for high income individuals, you have to do the math, for these are the clients who usually outearn the AMT....ie. much income taxed at 33-35%. In these areas 35% of 1133 might outweigh 10-15% of 3400, especially if they live in a high tax state where exemptions are allowed.
I've found this true also when education credits are shifted, and neither party is allowed the exemption. But you are on the right track, and modern software does the calculations for you. | |
RoyDaleOne (talk|edits) said: | 4 February 2008 |
| I would suggest you Pub 17 for qualifing relative test.
I think you will find it require either more than 50% or mulitple support (that is no one provides at least 50%). Let me know what you find. | |
| 4 February 2008 | |
| Roy I agree with you for qualifying relative, but what the poster is talking about is qualifying child. | |
Death&Taxes (talk|edits) said: | 4 February 2008 |
| "In general, all four of the following tests must be met to claim someone as a qualifying child.
Relationship test. The child must be your child (including an adopted child, stepchild, or eligible foster child), brother, sister, stepbrother, stepsister, or a descendent of one of these relatives." http://www.taxalmanac.org/index.php/2005_Tax_Law_Changes_-_Uniform_Definition_of_a_Qualifying_Child | |
RoyDaleOne (talk|edits) said: | 4 February 2008 |
| Thanks Kathyt, I missed that.
Support test for EIC still? | |
| 4 February 2008 | |
| Never was a support test for EIC (at least for many years). Agree with D&T and KathyT that we are discussing qualified child not relative. | |
Taxestaxes (talk|edits) said: | 4 February 2008 |
| I see where everyone is coming from with this, and while it may be legal, its things like this that cause problems. When you let one do it, they tell someone, and before too long you have everyone and their brother coming in wanting to claim someone else's child or a sibling, etc. Then its up to the taxpreparer to find out out who's telling truth? How do I know if Joe's little brother really lived with him? I guess I just dont agree with letting this loophole be known.....lets face it, the parents really did provide the support, so why should the brother get all this money? Its is our money -the taxpaying people....sorry just had to put my opinion in.....:) | |
| 7 February 2008 | |
| I agree with your comment above however...as professionals we should know our clients and their circumstances. We are not HRB or Jackson-type preparers. I would never indtroduce this thought to a client where the circumstances did not permit it. and I would question thoroughly any new clients desire to work this loophole. My engagement letter establishes that we will prepare the return in its most favorable manner according to the current law. I don't think this is an "open season" loophole because I think all the necessary circumstances have to exist in order for it to work and be a justified tax position. | |
