Dependent on Tax Return

Discussion in 'Coast Guard Academy - USCGA' started by RAC131, Mar 3, 2018.

  1. RAC131

    RAC131 Member

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    For Tax Year 2017. any other comments regarding whether a parent is able to claim first year servcie academy students as a dependent. DD is a Firstie at USNA and in 2014, I claimed her because she lived with me 6 months. I used Turbo Tax and don't recall there being a question about her earning more than $4,050. This year, I have a DS (frist year) at USCGA. Again, using Turbo Tax, I responded that he lived with me for 6 months, which is accurate. However, there is a question regarding his income in 2017. Considering 6 months at USCGA, his W2 reflects wages of $6550 so over the $4,050 limit. Responding yes to this question removes his status as my dependent. Considering service academy students earn more than $4,050 even in their first year, that would suggest parents can't claim them at any point once they enter the SA. Seems pretty clear to me but wanted to make sure I am not missing something (grasping at straws here).
     
  2. mswmommy

    mswmommy Member

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    I don't know the answer but have seen various threads on tax/claiming as dependents, including this long and informative one:
    www.serviceacademyforums.com/index.php?threads/what-is-not-provided-by-uncle-sam.47246/page-2#post-468598
     
  3. jl123

    jl123 Member

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    Only your accountant can tell you for sure. It's tricky and the easiest thing to do is not to claim them. In addition to any time living with you requirement, you also have to show a substantial amount of financial support. I don't recall the exact figure last year, but it was about $40k. Also, whether or not it benefits you depends on your tax bracket and itemized deductions.

    I told DS not to claim himself last year (USMA) assuming the tax credit was much more valuable to me than him. By not claiming himself he lost about $100 -$200 on his refund. I met all the requirements to claim him, but my CPA said it didn't matter - should have asked him before deciding.
     
  4. jl123

    jl123 Member

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    The "Catch 22" is that if you make enough to meet the financial support requirement, you are more likely to be in a tax situation where claiming them as a dependent won't help.

    It will only help if you make enough to provide more than 50% financial support (about $40k), but not enough to have complicated taxes.

    FYI. The academies issue a statement each year with the amount of support provided by the academy - including tuition,board, pay, etc. That is the number you have to exceed to claim child as a dependent.
     
  5. kinnem

    kinnem Moderator 5-Year Member

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    The 50% requirement has nothing to do with what one makes (income). Instead it depends on how much was spent. Of course if you don't make enough to spend enough then it's mox nix.
     
  6. jl123

    jl123 Member

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    Yes, that was my point regarding income. I should have explained it better. To clarify: If the academy provides $40k in support, then the parents must spend more than $40k in order to meet the 50% requirement.

    Someone who makes $60k is not likely spending $40k on a single dependent. If the parents make $500k+, they may spend more than $40k in support for the child, but are more likely (but not always) to have a tax situation that makes the extra dependent unnecessary.

    Here is the relevant info from the tax memo USMA sent in December 2017:

    DEPENDENT EXEMPTION/PERSONAL EXEMPTION: Each year, a number of Cadets in our plebe class find their tax return is rejected by the IRS because both they
    and their parents or guardians have claimed the same personal exemption. Many parents or guardians believe they can continue to claim their son or daughter while they
    are a full-time student. However, being a full-time student is only one of the five tests that must be met in order for your child to be a “qualifying child” for tax purposes. Most
    importantly, 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, room and board, the Army and your Cadet show a combined contribution of more than $40,000 in support. The exact amount of the
    combined Army and Cadet contribution will be circulated shortly. In most circumstances, your financial support 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.
     
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  7. USMA 1994

    USMA 1994 Member

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    I also confirmed the letter with the Tax Office at West Point because I like to know "how it works" not just be told "no". This really is not that complicated and does not need a tax lawyer to figure it out.

    IRS Publication 17 explains the process and there are 5 0r 6 questions to answer to determine if the individual is your dependent and there is a table to complete.

    The biggest test is did you provide more than half of their support . The letter from West Point was addressed to all cadets and mentions that USMA shows that they provide $40,000 a year in support. My question to the tax office is that for an entire year or half a year. The lady I spoke with agreed that the letter did not distinguish but the number is actually $80,000 a year. So a parent needs to show that they provided more than $40,000 in support the first year.
     
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  8. jl123

    jl123 Member

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    Whether you qualify is fairly simple to figure out. Whether claiming the dependent is actually useful is more complicated.

    If you have few or no itemized deductions and a relatively simple tax return, claiming the dependent will probably save money (if you qualify). I know one family that saved a couple thousand dollars by retaining the dependent. They fell in the sweet spot - made enough to be able to meet the financial requirement, but still had a tax situation that permitted the deduction to be useful.

    If your return is more complex, it is best to get professional advice. Making a mistake with the IRS is unpleasant.
     
  9. kinnem

    kinnem Moderator 5-Year Member

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    I heard a preacher coaxing some people to speak at a funeral recently. They had planned on speaking, had prepared remarks, and yet were reluctant to come to the microphone. He said people have 3 big fears in life. The first is dying, of course. The second is receiving a communication from the IRS. The third is public speaking. :D
     
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  10. Humey

    Humey Member

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    I am a CPA if that helps. When it comes to dependent children, there is no real income limitation. So if they make more than $4050 it isnt an issue. Same goes for not living at home. College kids living at school are still classified as living at home. Here is the kicker where it comes to income. The money they earn cant provide for more than 50% of their support. This never comes up with my clients because all of my clients provde way more than 50% of their kids support. Honestly I dont even know what 50% of support even means. If your lifestyle requires 100,000 to live, do you need 50,000 from your parents, but if you need 500,000 to live, you need 250,000 from your parents. I know dont who the acadamies work or if they pay anything to the cadets. However, I would presume that since the academies pays all of their needs, the parents no longer provide more than 50% of their support. If the question is can you take them on the first year, it has nothing to do with time living away from home, but rather who paid more for the kid that first year, the academy or the parents