One of the biggest impacts made on your personal tax return is who you claim as your dependent(s). The laws regarding this seem clear, but can be difficult to understand. This is especially true when your "co-worker said", or your "mom told me" that you could claim so-and-so on your taxes. The truth is there are several factors that must be considered to determine who is your dependent for tax purposes. Among the factors are: how you are or are not related, the living situation, who pays for what, custody arrangements, and citizenship status. After all, you don't want to leave any money on the table when it comes to taxes, and vice-versa; you don't want to have to pay the government back for something you should not have gotten in the first place. At Crystal Clear Tax Solutions, doing the right thing is our no. 1 priority, and that means accuracy! So, how do you know who you can and cannot claim on your taxes? In this 3 part series you can learn the answer to this question.
Read on to learn about claiming an unrelated Qualifying Relative.
Ask yourself these questions:
1. How are we related? This seems like an easy question to answer, but the truth is a lot of us think we are related when FOR TAX PURPOSES we are not considered related, or in-fact we are related and didn't know it. For example, did you know that your step-son whose father you divorced 8 years ago is still considered your step-son for tax purposes! Your ex's mother is also still considered your mother-in-law! Yes, it's true... divorce does not change a relationship that a marriage created, according to tax law. This is just one example of how complicated this question can be. Of course, most of the time it will be easy to answer... i.e. he's my son, she's my daughter, he/she is my spouse, that's my mother, etc. We also have relationships that we need to be careful to define. For example, I have a client who is co-habitating with a significant other. They have a child together, and they each have children of their own, who were biologically born to another parent. The first time I did taxes for this client, I asked "How many kids do you have?" He told me about all of the kids, not considering that 3 of them are not biologically his children. After all, he has been raising them as his own for the last 7 years or so, and in their family world he IS their dad. In order to find out that they are not actually related FOR TAX PURPOSES, I asked additional questions and through conversation, discerned the tax situation. Also, for tax purposes, a cousin is not considered a relative. Here is what the IRS says about who is a relative:
"A person related to you....(includes)
Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). (A legally adopted child is considered your child.)
Your brother, sister, half brother, half sister, stepbrother, or stepsister.
Your father, mother, grandparent, or other direct ancestor, but not foster parent.
Your stepfather or stepmother.
A son or daughter of your brother or sister.
A son or daughter of your half brother or half sister.
A brother or sister of your father or mother.
Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
Any of these relationships that were established by marriage are not ended by death or divorce" (IRS Pub 17, p. 33)
2. We are NOT related. Now what? Whether or not you are related, does not in and of itself determine if the person is your dependent. It does change the other requirements for claiming them as a dependent. The chart below will help you determine if the person qualifies.
The flow chart was created by Crystal Clear Tax Solutions, LLC and is property thereof. Do NOT re-use without written permission from the author.
You should call a tax professional to be guided through the process if you need help. The information in this article is for informational purposes only, and should not be used as express advice for any one particular individual's tax decisions exclusively. You should always consult your tax advisor as all individuals have unique tax puzzles and the pieces are never the same. Next week we will discuss who is a related Qualifying Relative and the specific rules for support and living situations.