This can be a sticky question when you file your taxes, and it is often overlooked. If your child was mowing lawns or working at a drive-in this summer, can you still claim them as a dependent on your taxes?
When you are dealing with a dependent child, the tax rules are not the same as dealing with any other type of dependent. The first question you need to answer is if they provided more than half of their own support in items such as gifts, fun activities and entertainment, food, housing, their clothes and buying along with maintaining their own car. This can also include other forms of transportation and school expenses. Keep in mind, that if you claim your child as a dependent on your tax return, then they should not claim their own exemption, even if you chose not to claim them for other reasons.
It is important your child gets started off on the right foot with the IRS. To help them, you may want to include them in your meeting with your tax professional, when you go over your return filing. They will not only see the correct way to handle this question, but how they will probably be handing taxes in the future. It is also an important lesson in understanding the taxes being withheld from their paycheck; where that money is going, and the ramification of not checking the right box for dependent or tax exemption, when they do the paper work for their first employment experiences.
A lot of things change when your child starts working that first after school job. Another question to answer is, if you have to put their income on your statement, or if it might create an issue when applying for collegiate grants and loans. Laws are changing yearly on these questions, so they should be on your list for your tax professional. In the past, if a dependent earned income of more than $6,200, they had to file, and that could include dividends and interest from items such as grandparents purchasing whole life policies for your child.
Normally, it is best for your child to file a tax return if there is profit involved from an item such as dividends. They will have their own tax rate that will not be connected to your incomes rate. There is not a minimum age requirement for filing, so this is another good question to have ready for your tax professional.
A child dependent, under the age of 17, usually will still qualify for a child tax credit; but keep in mind the best option to help your child get started with their own tax situations, and keep your tax professional informed of any and all changes in employment and earned income. If you are looking for answers, we are always available at Affordable Tax Prep & Bookkeeping Services.