Are cadets "students" for tax purpose? Also a question about "Saver's Credit" tax deduction.

[brewmeist]

didn't know about the EIC, will check it out thanks!

This is a whole other reason to not claim our Cadets and Midshipmen as dependents. Between Covid stimulus and EIC credits, my son has a few extra thousand in his bank acct that he would not have if I had claimed him. It definitely benefitted him much more than it did me and my wife. Going forward, even having just the EIC in play is enough to let him be on his own. At this point in our lives, an extra thousand means a whole lot more to him than it does me.

 

[justdoit19]

This is a whole other reason to not claim our Cadets and Midshipmen as dependents. Between Covid stimulus and EIC credits, my son has a few extra thousand in his bank acct that he would not have if I had claimed him. It definitely benefitted him much more than it did me and my wife. Going forward, even having just the EIC in play is enough to let him be on his own. At this point in our lives, an extra thousand means a whole lot more to him than it does me.

Funny story about this: my guys take care of their own at this point, other than me asking if they are done yet and a couple questions from the youngster. Anyhow, this summer, an official looking letter arrived here at home for my oldest Mid (now Ensign). Called him and he wanted me to open it. So I did. Turns out it was from the IRS: ‘hey, you are eligible for xxx that you didn’t claim….sign here and we will send you that cash!’ It was a good chunk and came in handy for his move across the country!

A few years back, my oldest son (USAF) got a letter, with a different story line: ‘hey, you messed up and you own us xxx. Send us that cash!’ So, he made a plan with them and did.

It’s not the end of the world if they mess up. And have to fix it. They learn!

A large, huge majority will agree that the parent can claim them, year one, and that’s it. Including my tax accountant. And USNA wont produce an official tax opinion bc they aren’t tax professionals (what I was told). Last year, my guys were instructed how to do their taxes accurately (mark ‘no’ for xx, ‘yes’ for xx) at the company level. Theirs really aren’t hard. And they are not our dependents.

Tax preparers come in all different levels of understanding, experience and education. Tax
laws are open to interpretation. 5 people will come to 5 different conclusions, easily, especially without detailed and complete first hand, primary info/understanding of a SA. Same with asking an IRS agent on the phone. I bet, asking 5 different 1-800 IRS agents will also get 5 different answers, without them also having first hand, primary SA info (especially since the caller states their own biases and personal understanding…not necessarily facts. Like phone tag). Might be fun to try sometime

Unfortunately, with our tax system the way it is presently, this is the result. Every year it’s a debate. People make CAREERS out of tax laws. Lawsuits. Loopholes. Blah blah blah. A dependency question for a kid at a SA is a drop in the bucket of confusion, imo.

You do you, after asking your questions. No one is going to end up in jail. Worst case? Audit and adjustment. My personal opinion, is spot on with @brewmeist. Firstly, it’s correct , and secondly? These kid are independent in all other ways…their education, pay, healthcare, uniforms, dental, surgeries, time management, housing, food, and not to mention they can be called to war any time, is all on them. I am in control of no part of their lives anymore. They are NOT my dependent. It doesn’t even FEEL right to claim them. Walks, talks and looks like a ? It’s a duck.



Disclaimer: I am not a tax professional. I leave that the to professionals.

 

[justdoit19]

To clarify, I would just add that if you read the USMA guidance letters (signed by a US Army JAG) attached above they reveal the following:

1. Dependent or not question:

"Dependent Exemption/Personal Exemption. Each year, the IRS rejects several first year (plebe) Cadets’ tax returns. This is the result of both the plebe and his/her parent(s) or guardian(s) claiming the same personal exemption. Many parent(s) or guardian(s) believe they can continue to claim their son or daughter while they are a full-time student. However, in order to claim a dependent, the taxpayer must be able to show that he/she provided more than half of the dependent’s support for the tax year. After totaling Cadet pay, food, education, and room and board, the Army provides Cadets with more than $40,000 per year. In most circumstances, the financial support a Cadet received from parent(s) or guardian(s) does not exceed this amount. Should you have any further questions regarding this matter, you may wish to consult independent legal counsel, IRS Publication 17, and/or the Internal Revenue Service (IRS). The IRS has eliminated the deduction for personal exemptions for 2020, but you will be taxed differently if you are claimed as a dependent on another’s tax return."

2. Savers Credit Question:

"Do not claim educational credits if the only education institution you have attended this tax-year is USMA. USMA falls under the Department of Defense and not the Department of Education. Therefore, Cadets cannot claim the American Opportunity Credit or Lifetime Learning Credit, for books and other education-related expenses."

The academy is not considered a college for tax purposes. They do not issue IRS 1098-T statements for tuition payments like colleges do. This is a common issue on these boards when it comes to claiming qualified (non taxable) costs as 529. The USMA guidance makes it clear that any draws from 529s will be taxable on the earnings portion as they are non-qualified draws, because the academy is not an educational institution in the eyes of the IRS. The USMA guidance makes it clear the usual tax breaks for college are not applicable further reinforcing the view that this is not college. If it is not a college, then they are not a student and therefore, they are eligible for the savers credit.

Bottom line, each can do as they wish and this is a complex area. However, viewing this trough the lens of explaining your position in an very unlikely tax audit, I personally would follow the written USMA guidance from the Academy and their legal opinion and use those letters as support of the position with the IRS. Most CPAs would welcome the USMA guidance, and lacking any definitive IRS opinion, would use it.

I hope this helps everyone is some small way.

I think the USMA letters are very helpful and am trying to increase the awareness of them.

This is great! And I’m printing it for reference.

One of the boxes my guy was instructed by UNSA specifically, to mark NO for, is the ‘student’ one. I do believe this is a big part of this debate. They are NOT students, yet they are going to school . Makes sense though!

Thanks for sharing this!

 

[Heatherg21]

I bet, asking 5 different 1-800 IRS agents will also get 5 different answers, without them also having first hand, primary SA info (especially since the caller states their own biases and personal understanding…not necessarily facts. Like phone tag). Might be fun to try sometime

^^^^'Might be fun to try sometime', HAHA. Heck no. I've spent time on the phone with IRS agents, not a good time, EVER.
Currently waiting for the IRS to fix my tax return. They decided my accountant made an error and withheld funds. My accountant drafted a very clear and concise (citing IRS statutes) response indicating we were owed money the IRS kept. Haven't heard a word and it's been months.

Am I going to call them? No way. I swear every experience I have had with them leaves me feeling like a bad person and the agent leaves me feeling bad about myself. Always condescending and soulless IMHO.

And @JustDoIt you are totally correct. The only thing my 2/C is dependent upon me for are snacks, home-cooked meals when on leave, hugs, and a safe place to vent.

 

[justme]

The only thing my 2/C is dependent upon me for are snacks, home-cooked meals when on leave, hugs, and a safe place to vent.

Geez, my 2/C only wants one of those, even. Thank goodness DW can cook.

 

[StPaulDad]

The only thing my 2/C is dependent upon me for are snacks, home-cooked meals when on leave, hugs, and a safe place to vent.

My DD forgot her sleeping bag at home at the end of summer so we had to send that and some munchies last week, but we really didn't need to send the munchies. Especially after 4c year they are very independent.