Relatives and children both count as tax dependents. They matter so much because they qualify you for certain breaks you couldn’t access otherwise. Such breaks are bigger than you might believe, which of course, means filing the paperwork correctly becomes an even more attractive incentive. We’ll show you how to identify and declare your dependents on your returns to make them as valid and legitimate as possible!
Let’s Define the Term
Kids and relations must possess certain attributes to fit this description. When they do count, you can take advantage of valuable deductions and credits that will help you save some money. The Head of Household filing status is a big deal, and it carries an immense amount of responsibility. That said, this distinction allows you to tap into the Child Tax Credit, the Earned Income Tax Credit, or the Child and Dependent Care Credit. Whichever one applies best will depend on your circumstances.
How Your Children Can Be Named as Tax Dependents
First of all, the child or children you claim must belong to your family unit. Sons, daughters, stepchildren, foster children, and siblings all fall into this category. Any children of such family members likewise qualify. However, the kids need to meet age restrictions. For instance, they must be 18 or 23 or younger; the second caveat comes from the “student” designation as long as they have been in school for five months of the calendar year. That’s the minimum threshold, at least. Even if your children exceed these age limits, you can still claim them if a doctor has diagnosed them with a permanent or total disability.
The So-Called Residency Test
The child in question must also live in your home with you. Some exceptions are accepted, such as moving away to college or spending time in the hospital. Cases of divorce or separation can complicate matters. In general, though, the custodial parent may claim their children as their tax dependents.
The Income Stream Test
When your children have a steady income, the lines blur even more. They cannot be named dependents if they claim more than 50% of their own financial support. Likewise, they are not allowed to file a joint return with someone other than you. The loophole has to do with possible spouses, though. That means the child and their spouse are permitted to claim tax refunds or estimated taxes paid. Finally, they must pass the citizen/resident test. What is that? We will have to explain next time!
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