One of my clients and her husband separated earlier this year and are in the process of getting divorced. She is legally able to claim their three young children as dependents on her tax return, and her attorney told her that she has to file a tax return and claim them even if her income isn't high enough to require her to file. The only income she has had this year is from her own small home decorating business, which has brought in approximately $500 net. She told me her attorney said that she might have to pick up another job to balance things out on her tax return. Can anyone explain why that would be? Does she need a higher income in order to file in this case? Or does it look better with all the divorce legalities if she has a higher income? I'm just trying to understand this kind of situation as I've not dealt with something quite like this before. Thanks in advance for any comments and advice!
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First question
You need to be sure your statement "she is legally able to claim their three young children as dependents on her tax return" is indeed correct.
With a net annual income of $500 or so, she might have a very large hill to climb to prove SHE provided more than 50% of the support for those children.
Having her file an income tax return (MFS or HOH?) might make things even more interesting. I'll let you explain to her why she likely owes Sch SE tax.
From the scant facts provided, my guess is the husband (the one with the income!) will try to claim the children as dependents and most likely would be successful.
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Is she trying to also maximize EIC?Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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She does NOT need to provide 50% of the support. The qualification of a "qualifying child" is the the CHILD does NOT provide 50% of support. The residency test is usually the determining factor for which parent is able to claim the child.Originally posted by FEDUKE404 View PostYou need to be sure your statement "she is legally able to claim their three young children as dependents on her tax return" is indeed correct.
With a net annual income of $500 or so, she might have a very large hill to climb to prove SHE provided more than 50% of the support for those children.
Having her file an income tax return (MFS or HOH?) might make things even more interesting. I'll let you explain to her why she likely owes Sch SE tax.
From the scant facts provided, my guess is the husband (the one with the income!) will try to claim the children as dependents and most likely would be successful.
FE
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Perhaps
(I knew I should have kept my mouth shut. . .Originally posted by TaxGuyBill View Post
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OK, you are technically correct except there are a lot of facts here NOT yet provided by tax123.
From the same link you provided, you perhaps should ALSO have mentioned this jewel: "If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child."
My money remains on the father getting the three dependency exemptions.
As for the potential wifely EITC...not gonna be a lot with $500 or so of "earned income." ( Dare I even mention that a MFS return does not qualify for any EITC benefits ? ? ? ? ? )
This one sounds like a good scenario for the Blocks and J Hewitts and Libertys of the tax universe to deal with . . . . .
(I knew I should have kept my mouth shut. . .)
FEComment
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Sorry, I don't mean to aggravate you.
You are right, we don't have of the details. However, I am under the impression that the child lived with the mother for the greater number of nights, and therefore she is the 'custodial parent'. If that is the case, the mother would win.
Under the "tiebreaker rules", the greater number of nights comes before AGI.
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HRB's treatment of this client
As a Block employee, I can tell you what I would do. After going through the criteria for dependency (age, residency, no children providing 50% support) and asking questions about her SE income (income, expenses, record keeping, etc.), I would give her an estimate of the cost of the return. She might get a few dollars of EITC if the $500 is net income but the return would probably cost her over $300. I wouldn't want to waste my time doing the return and then not getting paid for it. I would also tell her that if SE income is more than $400, she needs to file a return. However, I expect she would be out the door pretty quickly.
Don't assume that Block employees want to do phony returns any more than the rest of you on this forum.Comment
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One thing is clear. The attorney was right that she does have to file a tax return. This is due to the fact that she "has a small home decorating business" and has income of "approx $500 net." That means it is more than $400 gross. Now, whether she can file HOH or claim the children will depend on other factors. The father may be paying non-taxable child support. If there is a separation agreement, other factors may come into play. She can also agree to file jointly with the spouse if they are still married on 12/31/13.Comment
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form 8332
Couldn't she file FORM 8332 release exemptions for year so that soon to be ex would get bigger refund - have attorneys make sure that she shares in refund?
(that is if they cant/wont file MFJ)?Comment
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Additional details
You are correct that the children have lived with their mother ever since the parents separated earlier this year. All three of them are under the age of 10 and obviously didn't provide any of their own support. The mother and kids are living with her parents for a while, and with an income of $500 it is apparent that her parents are really supporting all of them right now. She was told by child support services that she can claim all three kids on her tax return. I don't know if the father will try to claim them or not. Her attorney told her to file as head of household. I understand her having to file a tax return because of self employment income over $400, what I'm trying to understand is why her attorney told her she might need to pick up another job. As far as EIC goes, with her earned income being only $500 she probably wouldn't get much for EIC, right?Originally posted by TaxGuyBill View PostComment
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Three kids with $500 of income is about $230 in EIC.
The attorney may have suggested a job because it would help her pay her bills, and it would increase EIC.Comment
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Divorced taxpayer
It seems to me that the grand parents are supporting both her and the children.They could be able to take all three as dependents if they lived with them more than six months.Comment
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H of H no way
There is no way she provided over 1/2 the cost of maintaining a household. She can claim the kids but no H of H.Comment
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I believe they have lived with the grandparents at least six months out of the last year.Originally posted by MDEA View PostComment
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You're right - there's no way she provided over 1/2 the cost of maintaining a household. I guess that's why I was confused when her attorney told her to file as head of household. I don't want to do something on her tax return that is a disadvantage in court, yet I'm not going to fudge on what is right and what she does and does not qualify for. It seems to me that she's going to need to file as single and claim the kids under that. She'll have to report her income and pay SE tax and she'll get only a small amount from EIC. Other than that, I don't know what else she would qualify for that would help her taxes, or what else needs reported on her tax return.Originally posted by Kram BergGold View PostComment
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