Tax Preparer-LBarthell Tax Service

[lbarthell]

Hello!!!
please reply how much can your dependent a full time college student age 19
how much income they can earn, and the parent can still claim her and the education credit..

Thanks

[ATSMAN]

Hello!!!
please reply how much can your dependent a full time college student age 19
how much income they can earn, and the parent can still claim her and the education credit..

Thanks

You may want to download the 2014 Pub 17 from irs.gov!

If the child lived with the parent for more than half of the year (counting time away at school) and the child did NOT provide half or more of their support and child is under age 24 being a full time student then the dependency exemption can be claimed. The parent can use the 1098-T to calculate AOC or Life Time Learning Credit.

The child's income is tested for the half or more support test.

[KC-CPA]

Full Time College Student with Income as Depend

Has anyone had a parent tell you their full time student (full time in Spring and Summer, graduated in Aug) who made $35K is their dependent... its late in the season so my thinking may be questionable but I have a hard time getting to the 1/2 support being provided, but it made me start thinking, I wonder what a good rule of thumb (estimate) would be to use in most cases without doing the calcuation? how do other preparers practically manage this situation?

[mooretax]

worksheet for determining support

See page 30 of 2014 publication 17 to determine support

http://www.irs.gov/pub/irs-pdf/p17.pdf

[David1980]

Has anyone had a parent tell you their full time student (full time in Spring and Summer, graduated in Aug) who made $35K is their dependent... its late in the season so my thinking may be questionable but I have a hard time getting to the 1/2 support being provided, but it made me start thinking, I wonder what a good rule of thumb (estimate) would be to use in most cases without doing the calcuation? how do other preparers practically manage this situation?

I've had both parents and students make questionable arguments and it's not just when the student has income either. Student loans are perhaps the most overlooked source of support for a student and often put the student as having provided over half their own support.

On the one hand, students seem to file returns and claim themselves when the student doesn't provide over half their own support. On the other hand parents ignore student loans and claim students that provide over half their own support. Probably screw ups on student dependents are very common - thankfully it's not an area the IRS is putting tons of scrutiny on or we'd see a lot more letters.

Guidelines? If it's a slam dunk one way or the other I go that way. If it's not being contested between student and parent and it leans towards the position they want to take I'm fine with that as well. When it makes no sense or if the student/parent are in disagreement I use the support worksheet (or rather, make them fill it out.)

[Roland Slugg]

There is no limit on the income of a QC, but the parent(s) do have to provide more than 50% of his/her support. Thus, the higher the child's income, the more likely it becomes that the "more then 50% support" test will not be met.

Regarding your second Q, there is an upper limit on the parent's income in order to be eligible to claim education credits.

And regarding this:

Has anyone had a parent tell you their full time student (full time in Spring and Summer, graduated in Aug) who made $35K is their dependent?

That would be a rather extreme case, but I suppose it could happen. A more typical scenario ... and difficult one to easily decide ... is where the recent graduate earns, say, $10K~$12K during the remainder of his graduation year.

Regardless of the child's earnings, though, amounts paid for education do count as support. So if parents pay, say, $30K for a child's last year in college, plus additional "support" expenses of another $8K~$10K or so, the support test may still be met despite the $35K the kid makes in the same year.

Remember, too, that the exemption can only be claimed on one return ... the parent's (in most cases) or the child's. So if a child does earn $35K, and the parents flunk the support test, the net tax effect willl probably be very little ... and perhaps none at all. A single taxpayer making $35K and taking the standard deduction will be in the 15% federal tax bracket. If his parents file a MFJ return, they will also be in the 15% bracket unless their AGI exceeds $94K. Even when the recent graduate and his parents are in different tax brackets, the bracket differential will rarely exceed 10%, so the net tax difference will usually be less than $400.

[buzzardbreath]

A common situation

I run into this several times every year. Most of the time I simply look at the child's W-2, and it is usually an easy "yes" or "no".

I believe there is even a safe harbor if the child earns the equivalent of a dependency deduction or less ($3950 for 2014).

Occasionally the decision becomes difficult, and "facts and circumstances" determine the deal. There is a difference between going to a local community state college and going to Georgia Tech, or some other school requiring $50,000 annually from the parents. Also a student loan is not deemed to be support on its own merit, but the proceeds are deemed to be support from whichever party made the loan.

As a rule of thumb, unless the child is extremely self-sufficient, I will allow child's income to be as much as $6K before I start analyzing for support.

And yes, the biggest problem may be where the child files an EZ return on his own and claims himself.

[Lion]

If you're talking about QC, then it is NOT the parents having to supply 50% support; it's that the child can NOT provide 50%.

Around here, with parental income butting up against 1 million, even the child who graduates and goes to work on Wall Street probably didn't pay more than 50% of his own support -- parents paid tuition, apartment, car, vacation, ski trips, electronics, cash allowance, food, airfare back and forth to Cal Tech or where ever, iPhone watch, designer clothes, visit grandparents in the UK, summer in Europe, and on and on.

[David1980]

Also a student loan is not deemed to be support on its own merit, but the proceeds are deemed to be support from whichever party made the loan.

Can you clarify that one? Who do you mean "whichever party made the loan"? Let's say the student takes out Stafford loans from the US Department of Education. Are you saying that the Department of Education is providing the support?

I think it's important to disconnect "income" from "support" because the two words are not the same. Yes, the student with $35,000 on a W-2 is probably paying a significant amount of that $35,000 towards their support - but it doesn't have to be the case. Maybe the $35,000 ends up in the stock market because the parents are paying all expenses and the student paid $0. At the same time, the student with no income whatsoever but that has taken out student loans of $35,000 that paid tuition and school expenses has provided $35,000 of their own support despite having $0 income.

It's the reason the worksheets for determining support don't say to only enter income, and why it focuses on funds available and expenses. For example Worksheet 3-1 on Pub 17 page 30 mentioned earlier by mooretax. If the student has taken out $35,000 in loans that year we would include that $35,000 on line 1. If on the other hand the parents took out loans of $35,000 that would not go on line 1.