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Can I Claim My Adult Child as a Dependent If He Lives with Me? And More Tax Q&A – Ask the Tax Pro 3/7/13

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The experts from Corporate Tax Network answer tax questions for free on the LegalZoom Facebook Page on Thursdays. Did you miss the last Ask the Tax Pro? Don’t worry. We’ve got it all right here.

Sheryl: My son is 20yrs old and earned 13,000.00. Can I claim him on my income tax. He lived at home for the whole year. I paid for more than half of all of his living expenses.

Corporate Tax Network: Hi Sheryl, Here are the rules for claiming dependents. Based on these rules, your son may qualify as a “child” if he is a full time student for at least 5 months of the year. There are five test that will qualify a child as a dependent:
1. Relationship: must be your child
2. Residence: must have the same residence for more than half the year
3. Age: must be under age 19 or under 24 and a full time student for at least 5 months.
4. Support: Must not have provided more than half of their own support during the year
5. Joint Support: The child cannot file a joint return for the year

There 4 test that will qualify a relative as a dependent:
1. Gross income: Dependent earns less than $ 3,800
2. Total Support: You provided more than half of the total support for the year
3. Member of Household or Relationship: The person must live with you all year as a member of the household or be your relative

Based on the information provided it seems your son fails both of the Age and gross income test, he will have to file his own tax return.

Gee: Why do retired senior citizens have to pay tax when removing money from annuities ?

Corporate Tax Network: Hi Gee, Earnings on an annuity are not currently taxed, like an IRA. When money is withdrawn, the earnings only are subject to income tax. You contributions are returned tax free. When you withdraw funds, earnings are considered to be coming out first, then your contributions.

Adolfo: To Tax Pros: How do I treat a duplex apartment units, where I the owner lived in one and the other unit was occupied but no rent collected? Can I still use schedule E to report my expenses?

Corporate Tax Network: HI Adolfo, If you rent part of your main home you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. You will be allowed to deduct the above expenses even though no rent was collected during the calendar year but you must have proof that the property was available to be rented out and you were actively looking for a tenant.

Brigitte: Business taxes: what is a major no no that business do when filing taxes.

Corporate Tax Network: Hi Brigitte,
Most common no-no’s is reporting personal expenses on the business tax return, reporting expenses such as mileage and meals and entertainment without substantiating evidence, and claiming “ estimates” rather than actual figures.

Said: What are the basic considerations when wanting to enter international market currencies? Where does one even start?

Corporate Tax Network: Said, Conduct fundamental research on the currencies you are interested in trading. It’s difficult to trade in more than just a few currencies so limit your research to the ones you are interested in. Some of the factors you will be researching are interest rates, inflation and unemployment, among others. Then you would look for a brokerage firm that can handle your trades. You will look for the type and amount of research available to you. In addition, you may be able to practice virtual trades to see how you do before investing actual funds. You will need to closely follow your positions since you will likely be using leverage, which magnifies the gain or loss in your position.

Julie: My husband and I own a catering business as an LLC partnership (newly formed in Q4 of 2012). Do we need to file our tax return to meet the 4/15 deadline or do we need to file 1 year from when we formed? Also, I have a full-time job so am involved little in the business (~5-10%). Do we file via 2 schedule C’s since we are married (splitting everything by our % of involvement)?

Corporate Tax Network: Hi Julie,

If you live in a community property state, you can file 2 schedule C’s and split the income and expenses 50/50. Otherwise, you would need to file a partnership tax return, form 1065 by April 15th, 2013 for a company that was registered on or before 12/31/2012.

Michelle: I have to amend my taxes to add my 1098 t and get my school credit, but i also have to file an injured spouse allocation since my husbands school loan was collected from our original refund…which should I do first? Or can I do them at the same time? Any help is appreciated…

Corporate Tax Network: Hi Michelle, You can include both changes when amending the tax return. Please fill out form 8379 for innocent spouse relief.

Cindy: I know a person who dies in January, has to pay taxes for the preceding year, but what about the year they died in?

Corporate Tax Network: Cindy, unfortunately, death does not excuse a final accounting with the IRS. A tax return would have to be filed for whatever income earned in the year of death. If the decedent was married when he/she died, the surviving spouse will file a joint return and provide the date of death on the tax return. Deceased is written after the name of the decedent. When there is no survivor, the taxpayer’s final return is filed by the executor of the estate.

Bobby: I want to claim my mom on my taxes. She does not live with me but meets the income requirement for a dependent. I gave her a car this year. Can I use the value of the car and its upkeep towards showing 51% support?

Corporate Tax Network: Bobby, your mother does not have to live with you to be claimed as your dependent. There is an exception for dependent parents in the tax code. However, her income should be under the exemption amount in order to be claimed as anyone’s dependent, which for 2012 is $3,800. If your mother collects social security, it would not necessarily count towards the $3,800 exemption, only the taxable portion would. Also, if your mother qualifies as your dependent and you maintain cost of her home, your filing status can be Head of Household, unless you are married.

Bobby: Thanks for the response. I guess my question concerns proving the 51% support. Can I use the value of the car toward that goal? What expenses qualify? Thanks

Corporate Tax Network: Bobby, the question here would be whether you’re letting your mother use your car or if you gift her one. Generally if you give a gift, depending on it’s fair market value, you might have tax consequences as a donor. However, letting somebody use your property without spending any extra money would not count as support. For example, if you give your mother gas money (where actual value can be placed) then it would count as support, or buying clothes for her. But letting her use your clothes or your car would not count since there’s no real value that can be placed on it. I hope this helps

Bruce: A group of us are considering starting a church. What are the tax benefits, if any?

Corporate Tax Network: Hi Bruce, You would need to apply for 501c3 tax exemption as a charitable organization, by filing form 1023. It’s about a 6 month process but would allow you to receive donations (tax deductible to the donor) and your organization would not need to pay any income tax when filing the annual form 990 with the IRS.

Kelly: Can u claim my granddaughter she was born on 11/30/2012 and her lived with me while she was pregnant with my granddaughter?

Corporate Tax Network: Hi Kelly, if you provided more than half of the support for the granddaughter and she lived with you since the day she was born, you would be eligible to claim her as a dependent. Please be sure to discuss this with your daughter, as she may have already claimed her child as a dependent (assuming she filed her return already)

Terry: My ex destroyed all of my receipts, documents and mileage reports, I was audited, I couldn’t provide anything to the IRS, now I have a tax lien on my credit report. How should this be approached? Do I have any recourse against my ex? Can you please give me any direction? Thank you!

Corporate Tax Network: Terry, ultimately it’s taxpayer’s responsibility to maintain accurate records to be presented in the event of an audit. If actual receipts were destroyed, you should be allowed to reconstruct them using other ways. For example, if expenses were paid out of the bank account and/or credit cards, those old statements would be helpful and can always be obtained from your bank(s), at most for a nominal fee. If the auditor initially disallowed your claim for expenses, you should appeal that decision and also request an extension to be able to reconstruct your records due to this extenuating circumstance. If you have police report against your ex that can probably give you more grounds for this. I recommend you hire an Enrolled Agent or CPA who specializes in audit representations to represent you in this appeal as they will have experience handling these type of cases. Best of luck to you!

Matt: Tax Pros Tax question:I have an LLC in Illinois which has rental property. I currently use H&R block to do my taxes in Colorado (where I am employed). The LLC is really for protection, but I do have a checking account that that I use for rents/payments. I basically claim my income overall and pay taxes to Illinois and Colorado. My tax preparations are expensive (around $750+). There has got to be a better way to do this? Should I have the LLC give me a 1099 then I could use Turbo Tax? What are your suggestions?

Corporate Tax Network: Matt is the LLC a single member or a multimember LLC?

Matt: Single member

Corporate Tax Network: Matt, you can purchase a software to prepare the taxes yourself, however if you have never filed taxes for an LLC before, it would be best to get professional help. If your business is a Single Member LLC, we may have more favorable rates for you, compared to what you have been paying, and you would get 15% off for being a LegalZoom fan. Please contact us at or check out the following link:

Jennifer: Hi there.. I’m self-employed for my full time job, but have a part-time job where I work two hours a week. I’ve also been working at the same place, 40 hours a week as a contractor for the entire tax year, so I have W-2 forms from each job. Both jobs take taxes out. What form should I use and, can I still claim my car, Internet, gas, parking, etc.. Since I’m self-employed?

Corporate Tax Network: Hi Jennifer, If you work as a contractor, the employer should not be taking out any taxes for you. If you get a 1099Misc form you can report your income and out of pocket expenses related to supplies, travel, meals etc, on a Schedule C. If you are a W2 employee and the expenses are related to W2 income, then you can claim the expenses as “unreimbursed job related expenses” on form 2106, however mileagef or commuting from home to work would not be deductible.

Jennifer: Thank you! I think mine is a unique situation.. I am working for a large corporation and they hire through a consulting firm that gave me the option to have taxes taken out, which I gladly opted for as I HATE figuring out 10-15% of each paycheck. Should I switch that? It just seems easier.. I’m still considered self-employed or contracted by their terms..

Corporate Tax Network: Jennifer, ask them what tax form they will be issuing to you at the end of the year. If it’s a W2, then you are an employee and would need to file form 2106. If you get a 1099 Misc form, then you can file a schedule C and claim your expenses.

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March 11th, 2013 at 6:23 am