Dependent or Not?

[Snaggletooth]

There is a difference between language "if taxpayer is claimed as a dependent" and "if a taxpayer can be claimed as a dependent".

I am confronted with a situation where a college student with minimal W2 income can be claimed by his father as a dependent. As far as college credits are concerned, father's income is over $180,000 so father phases out of any benefit, and only value to claiming the student is the $500 "other" dependent.

The student, however, if allowed to claim himself can get much more benefit from the 1098-T.

The Tax Book disallows this if he is a dependent, but does not go so far as to state "can be claimed as a dependent."

[terryats]

Years ago when I had clients (upper income) I would have them not claim their child, and had the child fill out his/her tax return not claiming themselves, and claim the education credit for themselves. Here is an excerpt from instructions for form 8863. Never had a issue with the IRS. Haven't done it in years, so can't say for sure you can still do it.

Who can claim a dependent's expenses.

If a student is claimed as a dependent on another person's tax return, all qualified education expenses of the student are treated as having been paid by that person. Therefore, only that person can claim an education credit for the student. If a student isn't claimed as a dependent on another person's tax return, only the student can claim the credit.

[New York Enrolled Agent]

There is a difference between language "if taxpayer is claimed as a dependent" and "if a taxpayer can be claimed as a dependent".

I am confronted with a situation where a college student with minimal W2 income can be claimed by his father as a dependent. As far as college credits are concerned, father's income is over $180,000 so father phases out of any benefit, and only value to claiming the student is the $500 "other" dependent.

The student, however, if allowed to claim himself can get much more benefit from the 1098-T.

The Tax Book disallows this if he is a dependent, but does not go so far as to state "can be claimed as a dependent."

Have you looked at Form 1040?

Standard Deduction: there's a box to be checked: Someone CAN claim "you as a dependent"

Dependency is a matter of fact, not a matter of choice.

The AOTC credit can be used to reduce tax liability but is not refundable for any student as described above.

[terryats]

Agree with NYEA. Student that can be claimed but is not, and not claiming themselves only gets the nonrefundable credit. The clients that I had, their kids worked, and had a tax lability, so it worked out for them

[Dude]

I think increased manpower and enforcement at the IRS is going to make a lot of people realize assumptions made on past success is not an assurance of future success. The refundable part of the AOTC is a good example. I am sure many students have filed and claimed the refundable portion without realizing this is not allowed unless both parents are deceased. https://www.irs.gov/instructions/i88...nk53002gd0e289

[Rapid Robert]

"claimed the refundable portion without realizing this is not allowed unless both parents are deceased."

Just to clarify, having at least one living parent is only one of several conditions that all have to be met in order to disqualify the refundable portion. It is still possible to be a full time student between ages 18 and 24 and qualify for the refundable portion with one or more living parents.

[Dude]

"claimed the refundable portion without realizing this is not allowed unless both parents are deceased."

Just to clarify, having at least one living parent is only one of several conditions that all have to be met in order to disqualify the refundable portion. It is still possible to be a full time student between ages 18 and 24 and qualify for the refundable portion with one or more living parents.

Possible to do it just not probable because that means they also filed a joint return. Alot of self prepared returns were filed by college students 18-24 claiming this credit. Only a small percentage of people in this age group who are also in college are married. I think these returns are going to serve as low hanging fruit for the newly hired agents.

[Rapid Robert]

It is still possible to be a full time student between ages 18 and 24 and qualify for the refundable portion while filing as single and with one or more living parents. It's in the instructions that you posted a link to.

[Dude]

Again NOT probable. In fact, A Full time student who claims they have enough earned income to provide over half of their own support with earned income is just another red flag. Any tax preparer who would take a kids word for it without asking for a budget is irresponsible. These are undergrads and support includes the cost of education and insurance which comes through the parents more than likely since the cut off age is 26. Again, my point many people followed what Snaggletooth implied which is the kid is eligible for the refundable portion as long as the parents did not claim them. It is possible but more than likely people who do this will get caught up in an audit with the new IRS agents hired. Not only are they easy audits but based on the parents inccome they will probably be able to claim they are really going after high earners who are trying to skirt their taxes. Easy pickings with cover.

[Twin Turbo Z]

We have had a several college age students who's parents did not help financially in any way. And when filed, the students claimed themselves and college credits. In one instance the student received a letter from the IRS wanting info verifying "support". We typed up a letter stating the parents are not helping and attached documents showing that the student was financially independent. A couple weeks later the IRS released the monies to the student.

[Snaggletooth]

Thanks to all for the discussion. Knowing the facts and circumstances of my client's situation, I had best not try to take AOTC.

We've also heard a lot about those 87,000 new IRS agents. Some relevant facts:

1. The 87,000 new agents are to take place over 10 years.
2. The new agents are to replace an expected 50,000 agents that are going to retire in next 10 years.
3. The House of Representatives is trying to cut the budget for next year's supply of agents as we speak.

[Lion]

Dependents can get the nonrefundable AOTC by meeting a few requirements. The refundable AOTC has many more hoops to jump through to qualify. Work with whole family -- if the whole family are your clients -- to get the best, legal tax result for the family. That might mean the parents not claiming a qualifying dependent who then does NOT claim himself but DOES qualify to lower his tax liability as far as zero with the nonrefundable AOTC, if he saves more than his parents lose. Run the numbers, but also follow the law.