That is one of the trickiest questions when it comes to preparing your taxes. It’s so difficult because the nature of families has changed so much. Back in the days before divorce was as common as it is today, claiming a dependent was easy. Two parents meant one married filed jointly return that claimed all the children. Today, just having the parents separated and filing two returns can mean audits if you’re not careful!
It’s also important to make sure you’re claiming every dependent you can. If this recent economic crisis has taught us anything, it’s that it’s very important to get your taxes right so you get the largest refund you’re entitled to. Last year, the average tax refund was nearly three thousand dollars according to the IRS. Who wouldn’t want an extra $3,000 to help with bills this year?
So, let’s discuss how the rules have changed and who you can claim as a dependent for the tax year 2010.
By definition, a dependent is someone who is a qualifying child or qualifying relative, which by definition makes it only possible for that dependent to appear on one tax return. When it comes to deciding if someone is a qualifying child or relative, qualifying child takes precedence if the individual satisfies all the requirements..
To be considered a qualifying child, you need to satisfy four criteria – relationship, residence, age, and support. On relationship, the child must be your child, step child, adopted or foster child, brother or sister, or a descendant of one of these (so nephews count too). They must live with you for more than half the year (residence) and be under the age of nineteen unless they are in college, then the age limit rises to twenty four. The age restriction is removed if they are totally and permanently disabled. Finally, you must provide more than half of his or her financial support during the year.
To satisfy the requirements to be a qualifying relative, there are six requirements. First, they can’t be a qualifying child. They have to earn less than the personal exemption amount during the year, which for TY2010 was $3,650. You must also provide more than half of the total support. If they are married, they cannot file a joint return with their spouse (this would be double counting). They must be related to you in some way (the laundry list includes every conceivable familial relationship you can think of) or live with you for the entire year. Finally, they have to be a citizen or resident alien of the United States, Canada, or Mexico.
As you can see, many of the rules exist so that one dependent cannot be claimed on two returns.
Finally, we leave with this word of warning. This is also one of the areas where being accurate is crucial. If you claim someone who is already being claimed by another taxpayer, you’ll get audited regardless of which tax bracket you’re in. This makes it especially important for divorced parents to communicate with one another.