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Wealthy Client with College Student

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    Wealthy Client with College Student

    Client makes about $160K in taxable income annually.

    His son has just entered college, and Daddy is footing the bill. This is true even though his ex-wife is claiming the son as a dependent.

    As far as taking education credits or tuition adjustment, his income level slams the door on that. He would like to find a way to benefit taxwise for all the money he is having to pay. As it is, I don't even know a thing to tell him. He cannot even claim his son as a dependent.

    Dad does have a company, and one way would be to pay the son for working at the company. But his son does not work at the company, and any such wages paid to him would be phony.

    Any ideas?

    #2
    All is not lost - The ex gets to claim the education expenses

    Read Pub 970 "Expenses paid by others". There is an example that fits these facts. Basically, if a student is claimed as a dependent, only the taxpayer claiming that student may take the education credits no matter who has actually paid them. So the ex-wife may get some tax benefit, depending on her AGI.

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      #3
      Could the kid legitimately work for the business by actually dong some work via telecommuting?
      Making customer service or collections calls? etc?
      "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

      Comment


        #4
        I have a client making over $200K whose dependent daughter is a college student BUT he can't get any credit for education expenses due to his high income. Last year he let his ex girlfriend (mother of the child) claim her and get the benefit, even though he and and ex girlfriend are not on the best of terms. I was told that the daughter was going to get from her mother a portion of the tax benefit in cash.
        Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

        Comment


          #5
          Just another tax scam

          Originally posted by ATSMAN View Post
          I have a client making over $200K whose dependent daughter is a college student BUT he can't get any credit for education expenses due to his high income. Last year he let his ex girlfriend (mother of the child) claim her and get the benefit, even though he and and ex girlfriend are not on the best of terms. I was told that the daughter was going to get from her mother a portion of the tax benefit in cash.
          He "let his ex girlfriend...claim her" ??

          Let me guess: HOH? College credits? EITC?

          Hopefully you had nothing to do with that return!!

          FE

          Comment


            #6
            Originally posted by FEDUKE404 View Post
            He "let his ex girlfriend...claim her" ??

            Let me guess: HOH? College credits? EITC?

            Hopefully you had nothing to do with that return!!

            FE
            Since the ex-girlfriend is the daughter's mother, nothing wrong with using Form 8332 to allow her to claim her daughter and the education credits - that's legal - NO?
            However, she would not qualify for EIC or HOH even with the 8332.

            Comment


              #7
              Originally posted by buzzardbreath View Post
              Client makes about $160K in taxable income annually.

              His son has just entered college, and Daddy is footing the bill. This is true even though his ex-wife is claiming the son as a dependent.

              As far as taking education credits or tuition adjustment, his income level slams the door on that. He would like to find a way to benefit taxwise for all the money he is having to pay. As it is, I don't even know a thing to tell him. He cannot even claim his son as a dependent.

              Dad does have a company, and one way would be to pay the son for working at the company. But his son does not work at the company, and any such wages paid to him would be phony.

              Any ideas?
              I assume by your post the client is Single, thus AOC phaseout at 80-90K is gone.
              Does he have a girl-friend - getting married would raise the phaseout to 160 - 180K.
              Then maybe he could convince the ex to sign an 8332?

              However, the most tax credit he'll ever get is 2,500 - probably every other year at best. Is it worth fretting over?

              Comment


                #8
                Originally posted by FEDUKE404 View Post
                He "let his ex girlfriend...claim her" ??

                Let me guess: HOH? College credits? EITC?

                Hopefully you had nothing to do with that return!!

                FE
                I don't think it is a scam because he did sign off on 8332. Ex girlfriend (mother of the child) does not collect EITC but is HOH because she has another child (not my client's son). The daughter wanted the AOC credits and could not stand the fact that her father was going to miss it because of his high income.
                Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

                Comment


                  #9
                  Well tell her that her father could reduce his income to the point that he gets the AOC credit.
                  Of course, that might mean there's now no money to pay the tuition.

                  Come to think of it, this could be a teachable moment for a young, impressionable college kid.
                  She might learn a lesson or two about what's important on a tax return and what's irrelevant.
                  "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

                  Comment


                    #10
                    Originally posted by mactoolsix View Post
                    Since the ex-girlfriend is the daughter's mother, nothing wrong with using Form 8332 to allow her to claim her daughter and the education credits - that's legal - NO?
                    However, she would not qualify for EIC or HOH even with the 8332.
                    Assuming the man and ex girlfriend do not live together then it would be important to know the child's age. If he has reached the age of majority, which is 18 in most states, before July of the tax year then there is no way he could give the ex girlfriend an 8332. If he indeed was 18 prior to July 1 of the tax year then the only one who could claim the child as a dependent would be the Dad, as the child/student would be a qualifying child of his.
                    The rules for divorced / separated parents do not apply once the child has reached the age of majority and form 8332 is no longer in play.

                    Comment


                      #11
                      For clarification, I was referring to the post about the 200K taxpayer with the daughter in school. Assume the daughter lived with him.

                      Comment


                        #12
                        Originally posted by dan doshan View Post
                        Assuming the man and ex girlfriend do not live together then it would be important to know the child's age. If he has reached the age of majority, which is 18 in most states, before July of the tax year then there is no way he could give the ex girlfriend an 8332. If he indeed was 18 prior to July 1 of the tax year then the only one who could claim the child as a dependent would be the Dad, as the child/student would be a qualifying child of his.
                        The rules for divorced / separated parents do not apply once the child has reached the age of majority and form 8332 is no longer in play.
                        The Tax Court would appear to agree with D.D.

                        From Boltinghouse, TCM 2007-324
                        Petitioner also does not qualify for the deduction under the special support test for children of divorced parents. Sec. 152(e)(1). Section 152(e)(1) applies only when the child is in the custody of one or both parents for more than one-half of the calendar year. We have held that once a child reaches the age of majority under State law, she is no longer in the custody of either parent for purposes of section 152(e). Ferguson v. Commissioner, T.C. Memo. 1994-114; Kaechele v. Commissioner, T.C. Memo. 1992-457.

                        Comment


                          #13
                          thanks to everyone

                          appears from the posts that the most promising strategy is to find a way to employ the student in Dad's company.

                          The suggestion that a $2500 is the maximum benefit (credit) available to the taxpayer may make good sense to the client. For some of my clients this is a bunch of money. (Like rent for 6 months) This client would be much better off hiring his son.

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