Saturday, December 29, 2012

Can I claim myself? FAQ#1

Rose Hudson, college student 
Frequently asked question #1:  My parents are NOT claiming me on their return, so can I claim myself on my own return?

Answer:  Whether you can claim yourself on your tax return does NOT depend on whether your parents actually claim you as their dependent.   It depends on whether they *could* have claimed you under the applicable tax laws.

If any other taxpayers qualify to claim you as their dependent, you may NOT claim an exemption for yourself on your own tax return, even if they choose not to exercise their right to claim you.

That is why our official IRS  Intake/Interview sheet asks:

Notice the wording.  It is quite deliberate.  We are not asking "Is anyone else claiming you?"  We are asking "Can anyone else claim you?"

You can see the same kind of wording right on the IRS Form 1040 tax return itself:

IRS Pub 17 (the definitive advice for laypeople) further reinforces the message by explicitly stating:

Your Own Exemption
You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent.

So, naturally enough, this leads to

Frequently Asked Question #2:  How do I know if another taxpayer can claim me on their return?

 That turns out to be a complicated question for many taxpayers, including many young people and some very low income disabled or elderly citizens who may not be providing all of their own support, so we will save it for the next post.

In the meantime, I will leave you with a case study from the VITA volunteer workbook.  Rose Hudson, the fictitious college student who also works as a restaurant manager, has checked the box on her Intake/Interview form to indicate that she does not believe that any other taxpayer can claim her.

However, experience shows that many taxpayers are confused about these matters, and given her age and student status and the fact she lived with her parents for at least part of the year raises questions about whether she can--in fact--claim herself.   Before going ahead and assuming that Rose can claim herself because she believes nobody else can claim her, we need to actually go through the information  she has given us and ask sufficient additional questions to be sure whether she is right in saying that nobody else can claim her.  

You can find Rose's tax documents and the notes taken by her interviewer at this link.   Feel free to take a look and see what you think.  You may find it helpful to use IRS Pub 4012 Tab C, IRS Pub 17, and/or IRS Pub 501 as references.

1 comment:

  1. Mary, I love the way you write. Simply said but deeply meant.

    Have you tackled the 1098-T? If you take the Ethics quiz (May 14, 2013) Question 5 asks " When it comes to education credits, tuition payments and Forms 8863 and 1098T, to avoid *committing fraud* it is important that taxpayers and preparers report the _______.

    amount of tuition billed
    amount of tuition paid
    amount of financial aid applied for
    number of course credits achieved for the tuition paid

    And of course, the answer is "amount of tuition paid."

    One of my tax buddies recently told me he had been informed by IRS that amounts reported as “billed” on the 1098-T, Box 2 are NEVER CONSIDERED PAID. This again confirms an October 2006 IRS e-News Report that “Form 1098-T is an information document although it has often been used as a source document. Therefore, taxpayers need to keep records of what they spent on tuition and how much they paid for related expenses to justify the education credits and expenses they claim on their returns.” IRS is FINALLY cracking down after all, or are they?

    If you watch the TTT video the question above is taken from, Frank Degen, EA and current President of NAEA, seems to think the new questions on the 8863 means IRS is cracking down.

    Many preparers are not up to date, and many students are not EITHER!