Thursday, December 23, 2010
Who gets to claim Johnny on the tax return?
The question of who can claim whom on a tax return is the biggest bed buffalo question of them all on tax returns typical of the low-income working families eligible for free tax assistance at VITA sites.
Depending on a variety of circumstances, the answer to the question "Who gets to claim Johnny?" could be Johnny's mom, Johnny's dad, Johnny's grandparent(s), Johnny's aunt, Johnny's big brother, Johnny's roommate, Johnny's girlfriend, or possibly Johnny himself.
Getting the answer right could mean securing thousands of dollars in refunds for the taxpayer legally entitled to claim Johnny.
That's why it's essential to get the answers right on dependency issues.
For VITA volunteer preparers, Tab C in your Pub 4012 Resource Guide (click here for PDF version) is the essential go-to reference to resolve these questions.
A few key points to bear in mind:
1) There are two kinds (flavors) of dependents: qualifying children (QC) and qualifying relatives (QR).
2) It is ALWAYS better for a taxpayer to claim a dependent as a QC than as a QR, so you should always apply the test for QC to Johnny first. (Why is it better? Because QC's come with a lot more tax benefits than QR's.) You will find the rules for QC in Table 1 of Tab C of Pub 4012.
3) If Johnny flunks the QC test, then check to see if Johnny meets the QR test. (Table 2 of Tab C of your Pub 4012 Resource Guide (click here for PDF version)">.)
4) Beware! The criteria for QR look deceptively similar. Both have support tests, but the support test is different for a QC than it is for a QR.
5) There are special rules for divorced or never-married parents. In that case, check out Table 3 of Tab 3 of the Pub 4012 Resource Guide (click here for PDF version) .
6) If Johnny qualifies as a dependent (of ANY flavor! QC or QR) of another taxpayer, he can't claim ANY exemptions on his own return.
The IRS Link and Learn website has an excellent interactive tutorial on basic tax law here.
I strongly recommend that you (and any family members and friends who want to play along and try the interactive quiz questions) work through the sections on personal exemptions and dependency exemptions on this page. It will serve you well on the Basic Certification test, and even more importantly, it will serve you well when you work with real taxpayers.
It is very likely that you will make mistakes as you work through the interactive tutorial--and that is exactly what you SHOULD be doing now! Making mistakes in practice will force you to think hard about the rules, and ask for help in figuring out how to apply them appropriately.