Can I deduct my grandson?

[ArchietheDragon]

Sept 19, 2014 9:31:03 GMT -5 Ombud said:

No offense meant but I'm only interested in the opinion of the IRS, FTB, mwcpa, rangerj, taxref, y'know other tax professionals who are busy with extensions. That's why I steered her towards the IRS website. It's complicated

Offense taken. 

[zibazinski]

Absolutely. The person you pay's advice is worth it. Free advice is worth exactly that.

[mwcpa]

From the IRS...

"Generally, the child is the qualifying child of the custodial parent."

"Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as... Education..."

"child lived with parent and grandparent.

You and your 3-year-old daughter Jane lived with your mother all year. You are 25 years old, unmarried, and your AGI is $9,000. Your mother's AGI is $15,000. Jane's father did not live with you or your daughter. You have not signed Form 8832 (or a similar statement) to release the child's exemption to the noncustodial parent.

Jane is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. However, only one of you can claim her. Jane is not a qualifying child of anyone else, including her father. You agree to let your mother claim Jane. This means your mother can claim Jane as a qualifying child for all of the six tax benefits listed earlier, if she qualifies (and if you do not claim Jane as a qualifying child for any of those tax benefits). "

[TheOtherMe]

Sept 19, 2014 7:52:28 GMT -5 zibazinski said:

My tax guy says I can unless she makes over 16k.

May I ask what is magic about $16,000 in earnings?

[zibazinski]

Got me hanging? It's what he said.

[taxref]

Who can claim the OP's grandson as a dependent, if anyone, will come down to the residency test.  In this case, the residency test may be tricky.

Giving a quick rundown of the other tests to be a qualifying child (QC), he meets the age test as he is under 24 and a full time student.  He also meets the support test, as he does not provide at least half of his own support.  He is single, so he meets the "doesn't file a joint tax return" test.  As a grandchild, he also meets the relationship test.

The residency test says that he would have to live with whoever claims him in the US, for at least 6 months of the year.  Temporary absences, though, count as time lived with the taxpayer.  Being away at school is considered to be a temporary absence, if the student home is with the taxpayer during school breaks.  

For example, assume Student A meets all the requirements to be a QC and lives in his school dorm.  He returns to his parent's home during the summer months.  He would be a QC for his parents.  

Conversely, Student B meets Student A at college, they fall in love and decide to live together off campus.  During school breaks they stay in their own apartment.  Even though all the other requirements to be a QC may be met, B and C's parents cannot claim them as dependents due to the residency test.

In the case for this thread, it would seem that either the father or no one could claim the OP's grandson.  If he returns to his legal address (at his father's place) during breaks, he is the father's dependent.  If he does not return there, no one can claim him.  


 

[taxref]

"May I ask what is magic about $16,000 in earnings?"

$16K is not, in and of itself, a cutoff point.   If the child qualifies as a QC rather than a QR, though, there is no income limit for the child to be a dependent.  Rather, the child must not provide at least half of his own support.  

Since the parent provides a good deal of support for the child, its possible that the accountant determined the value of the support given by the parent to be $16K.  If that is the case, the child would have to earn under $16K to provide less than half his support.

If the child did not qualify as a QC, he could not be a dependent as a QR.  That is because a QR cannot have income over $3,900.  


 

[TheOtherMe]

I know about the income for a QR.  I know the person claiming the dependent must provide over half the support.  It just seems like a weird number and wouldn't it change year to year?  If the child is in college, costs don't usually stay the same.

[taxref]

The Other Me: You are correct that the level at which the child would provide half of his own support would vary from year to year.  Parents usually know how much the costs will be for the upcoming year, though, and (unhappily) those costs are not likely to decrease.  It wouldn't be too hard to figure out an earnings number the child would have to stay below. 

Of course, my reasoning on this matter could also be completely off.  Its possible the accountant made an error, and/or the taxpayer misunderstood the accountant.   My scenario is just the only way I can make the "as long as he earns under $16K" seem rational.

[Mardi Gras Audrey]

Sept 22, 2014 11:55:22 GMT -5 taxref said:

"May I ask what is magic about $16,000 in earnings?"

$16K is not, in and of itself, a cutoff point.   If the child qualifies as a QC rather than a QR, though, there is no income limit for the child to be a dependent.  Rather, the child must not provide at least half of his own support.  

Since the parent provides a good deal of support for the child, its possible that the accountant determined the value of the support given by the parent to be $16K.  If that is the case, the child would have to earn under $16K to provide less than half his support.

If the child did not qualify as a QC, he could not be a dependent as a QR.  That is because a QR cannot have income over $3,900.  


 

What factors count as "support"?  

I ask this because I had an issue with the IRS many moons ago over being a dependent on my parents' income taxes.  The IRS tried to say I couldn't be their dependent because I "made too much" (I had a fulltime job at the time).

I was qualifying as a QC, not a QR (was a fulltime student, age 19).  I did make about $20k a year but they helped me in providing housing/food/etc.  My money went in my bank account, paid for a new car, etc.

They couldn't answer what factors are considered 1/2 of support.  If a child makes $250k a year and is a full-time student but parents pay all school/housing/food costs, are they a dependent?  What if child's money is just taken out of the bank and rolled around in?  Are the parents providing over 1/2 the support?  And who defines the level of support?  If kid pays for their own Gucci dresses and Manolo Blahnick shoes while parents pay rent, are the parents out a dependent if the dress and shoes cost more than the rent?

[taxref]

"If a child makes $250k a year and is a full-time student but parents pay all school/housing/food costs, are they a dependent? What if child's money is just taken out of the bank and rolled around in? Are the parents providing over 1/2 the support? And who defines the level of support? If kid pays for their own Gucci dresses and Manolo Blahnick shoes while parents pay rent, are the parents out a dependent if the dress and shoes cost more than the rent?"


In all of the cases you mention, the child would not be a QC unless the school/housing/food costs were more than the items the student bought.  Luxuries and/or wasteful spending on the part of the child generally still counts as the support provided by the child for himself.

The IRS has a chart to determine support.  A copy is on Page 16 of the 2013 Publication 501.  Reviewing the chart, it can be seen that what counts is not really gross income, but rather what the child pays in his own support.  For most college students, though, gross income and what they spend on their own support tends to be the same.  Money put into savings is not support, while money taken out of savings for support items is.  Again, though, for most college students that is not a significant factor.

The IRS chart also shows that entertainment, clothing, transportation, and recreation the student buys is part of his support.  Should a wealthy child spend his money on expensive designer clothing, rather than on a tee shirt from the campus bookstore, that designer clothing is still support.  Similarly, paying for a car would be considered transportation, which is also support per the chart.

 

[Mardi Gras Audrey]

Sept 25, 2014 11:33:15 GMT -5 taxref said:

"If a child makes $250k a year and is a full-time student but parents pay all school/housing/food costs, are they a dependent? What if child's money is just taken out of the bank and rolled around in? Are the parents providing over 1/2 the support? And who defines the level of support? If kid pays for their own Gucci dresses and Manolo Blahnick shoes while parents pay rent, are the parents out a dependent if the dress and shoes cost more than the rent?"


In all of the cases you mention, the child would not be a QC unless the school/housing/food costs were more than the items the student bought.  Luxuries and/or wasteful spending on the part of the child generally still counts as the support provided by the child for himself.

The IRS has a chart to determine support.  A copy is on Page 16 of the 2013 Publication 501.  Reviewing the chart, it can be seen that what counts is not really gross income, but rather what the child pays in his own support.  For most college students, though, gross income and what they spend on their own support tends to be the same.  Money put into savings is not support, while money taken out of savings for support items is.  Again, though, for most college students that is not a significant factor.

The IRS chart also shows that entertainment, clothing, transportation, and recreation the student buys is part of his support.  Should a wealthy child spend his money on expensive designer clothing, rather than on a tee shirt from the campus bookstore, that designer clothing is still support.  Similarly, paying for a car would be considered transportation, which is also support per the chart.

 

Hmmm.. good to know!  I remember I was very confused when the IRS rep (was on their 800 number) said I "made too much" to be a QC.  He didn't ask about level of support or expenses, just said flat out that I "made too much".  i guess he hadn't read the rules either.

Ombud, they weren't spending $20k that year but neither was I.  The 20k was gross and I was contributing to a 401k at the time plus paying FICA, income taxes, CA SDI, etc.  What money I had left went for a car payt (~$300 a month), savings, and a few odds and ends.  They were paying more than half what it costs to support me (savings, 401k, and tax money aside).

The confusing part is that the whole issue started because I DID NOT claim myself on my return so they could claim me (I did my taxes first).  The IRS "adjusted" my return saying I HAD to claim myself because I "made too much money to be another person's dependent"  .  They then upped my refund based on their "correction".  When I called them to explain I WAS another tax payer's dependent, I got the answer above.  I guess they didn't want me paying more in taxes?  I ended up resolving it but it delayed the refund that I was owed by about 4 months....

[taxref]

" I remember I was very confused when the IRS rep (was on their 800 number) said I "made too much" to be a QC. He didn't ask about level of support or expenses, just said flat out that I "made too much"."

Just for future reference, one should not rely on information given by the IRS over the telephone during tax season.  Independent studies going back for a few decades have tested the IRS help by phone.  The results have usually shown that  40% to 50% of the answers given are incorrect, either in whole or in part.

Of course, the IRS budget has now been so slashed that help by telephone is almost impossible to get during tax season.

[teen persuasion]

Sept 25, 2014 3:06:59 GMT -5 Mardi Gras Audrey said:

Sept 22, 2014 11:55:22 GMT -5 taxref said:

"May I ask what is magic about $16,000 in earnings?"

$16K is not, in and of itself, a cutoff point.   If the child qualifies as a QC rather than a QR, though, there is no income limit for the child to be a dependent.  Rather, the child must not provide at least half of his own support.  

Since the parent provides a good deal of support for the child, its possible that the accountant determined the value of the support given by the parent to be $16K.  If that is the case, the child would have to earn under $16K to provide less than half his support.

If the child did not qualify as a QC, he could not be a dependent as a QR.  That is because a QR cannot have income over $3,900.  


 

What factors count as "support"?  

I ask this because I had an issue with the IRS many moons ago over being a dependent on my parents' income taxes.  The IRS tried to say I couldn't be their dependent because I "made too much" (I had a fulltime job at the time).

I was qualifying as a QC, not a QR (was a fulltime student, age 19).  I did make about $20k a year but they helped me in providing housing/food/etc.  My money went in my bank account, paid for a new car, etc.

They couldn't answer what factors are considered 1/2 of support.  If a child makes $250k a year and is a full-time student but parents pay all school/housing/food costs, are they a dependent?  What if child's money is just taken out of the bank and rolled around in?  Are the parents providing over 1/2 the support?  And who defines the level of support?  If kid pays for their own Gucci dresses and Manolo Blahnick shoes while parents pay rent, are the parents out a dependent if the dress and shoes cost more than the rent?

We are on the flip side of the support equation.  We generally do not claim our college kids as dependants, because we don't provide more than half of their support, due to scholarships, loans and the kids' own savings and earnings.

Scholarships and grants are generally not taxable income as long as they are used for tuition, but work study earnings and student loan proceeds used for R&B would be counted as the student providing their own support.  Given the high cost of R&B, the kids are definitely outspending us on housing and food on a per capita basis (family of 7, mortgage paid off).  Loans are magic income that the students are spending but haven't earned yet.

[TheOtherMe]

Sept 25, 2014 3:06:59 GMT -5 Mardi Gras Audrey said:

Sept 22, 2014 11:55:22 GMT -5 taxref said:

 

What factors count as "support"?  

I ask this because I had an issue with the IRS many moons ago over being a dependent on my parents' income taxes.  The IRS tried to say I couldn't be their dependent because I "made too much" (I had a fulltime job at the time).

I was qualifying as a QC, not a QR (was a fulltime student, age 19).  I did make about $20k a year but they helped me in providing housing/food/etc.  My money went in my bank account, paid for a new car, etc.

Your earnings were being used for your support if you were paying for a new car, etc.  One would have to sit down and calculate it.  Many factors go in to support and who provides what.


I am a retired IRS agent and have calculated support in the past.  Lots of people think just because the child is in college, they can claim the dependency exemption.  Not necessarily.