Who Qualifies as a Dependent on Taxes?

Who Qualifies as a Dependent on Taxes?

Deciding if Someone Qualifies as a Dependent on Your Tax Return

How Do I Know if I Can Claim Someone as a Dependent?
To start, there are a few basic requirements that need to be met to claim someone else as a dependent:

No one else can claim you, or your spouse if you’re filing a joint return, as a dependent. Even if the person chooses not to claim you as a dependent, the fact that they could makes you ineligible.
You generally can’t claim anyone who is married and files a joint return. However, there are exceptions if the person only files a joint return to get back income taxes that were withheld from paychecks or estimated tax payments.
The person you’re claiming must be a U.S. citizen, resident alien (which can include undocumented residents), U.S. national, or resident of Canada or Mexico. There are also some exceptions for adopted children who lived with you in the U.S.
These general rules apply to everyone. Additionally, the person you’re claiming must meet all the requirements to be your qualifying child or qualifying relative.

The Two Types of Qualifying Tax Dependents
Children and relatives can qualify as tax dependents—but their definitions are broader than you may suspect.

In addition to your birth child or an adopted child, your foster child, siblings, half-siblings and step-siblings (along with all the siblings’ descendants) can be qualifying children. And your son-in-law, mother-in-law, parents, grandparents and in-laws could all be qualifying relatives.

A person doesn’t even need to be a relative to count as a qualifying relative. A girlfriend, boyfriend or roommate could be your dependent as long as the person is a member of your household for the entire year and meets all the other requirements.

The IRS’ Publication 17, chapter 3, has a complete list of which relationships can qualify someone as a child or relative for dependent purposes.

In addition to the relationship requirement, the qualifying child or qualifying relative has to pass a series of “tests.”

Qualifying Children
There are four tests for qualifying children:

The child must be 19 or younger at the end of the tax year and younger than you (and your spouse if you file a joint return). Qualifying children can be up to 24 years old if they’re also full-time students for at least five months of the year, or they can be any age if they’re permanently and totally disabled.
The child has to live with you for at least half the year. There are exceptions for temporary absences, such as when you or the child are away from home for school, business, vacation or military service.
The child can’t provide more than half of his or her own support during the year (scholarships don’t count as support).
The child can’t file a joint tax return unless the only reason for filing is to get back the taxes that were withheld from his or her pay or were part of estimated tax payments.
The rules for who can claim a qualifying child can get fairly complex when both parents can claim the child as a dependent but they aren’t married, or they file their tax returns using the married filing separately status.

Some parents switch off, letting one person claim the child one year and the other parent claim the child the next. The IRS also has an official series of tiebreaker rules (see page 30 of Publication 17) to determine who can claim the child if you can’t come to an amicable agreement.

Qualifying Relatives
There are three additional tests for your qualifying relatives:

The person can’t be anyone’s qualifying child.
The person’s gross income must be below $4,150. Income could include money, property, goods or services they received, and it may include Social Security benefits. However, there are exceptions for people with disabilities who received income from certain tax-exempt schools.
You have to provide more than half of the person’s support for the year.
If working through all the tests sound like too much work, you could also try the IRS’ interactive tool, which can help you determine if you can claim someone as a dependent.

DISCLAIMER: Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular
circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation. 

Have further questions?  Please contact our office and make an appointment.

5 Ways that the Federal Income Taxes Will Be Different in 2020

5 Ways that the Federal Income Taxes Will Be Different in 2020

​1. No individual mandate penalty
Most of the tax code changes stemming from the Tax Cuts and Jobs Act of 2017 took effect in 2018. One exception is the change to the shared responsibility payment, which took effect in 2019.

The shared responsibility payment — commonly referred to as the individual mandate penalty — had applied to folks who were required to have health insurance under the Affordable Care Act but who didn’t get coverage and didn’t qualify for an exemption.

If you owed the penalty, it was due when you paid your taxes.

Starting with 2019, however, there is no longer a penalty. So, folks who didn’t have health insurance in 2019 will not owe the penalty when they file their taxes in 2020.

2. No alimony deduction
Elimination of the alimony deduction is another Tax Cuts and Jobs Act change that took effect for tax year 2019 rather than 2018. For divorce and separation agreements made or modified this year or thereafter, alimony payments will not be deductible, says IRS Publication 5307.

So, a spouse who got divorced this year and paid alimony in 2019 cannot write the payments off on a tax return in 2020. That also means that a spouse who got divorced in 2019 and received alimony this year cannot count the payments as income.

3. Higher Health Savings Accounts contribution limits
Health savings accounts are another type of tax-advantaged account for which the contribution limits generally increase as the years roll along.

HSAs are not strictly for retirement savings, although you can effectively use them as retirement accounts, as we explain in “3 Reasons to Get a Health Savings Account.”

The 2019 contribution limits for people who are eligible for an HSA and have the following types of high-deductible health insurance policies are:

Self-only coverage: $3,500 (up from $3,450 for 2018)
Family coverage: $7,000 (up from $6,900)

4. Higher standard deductions
Standard deductions are somewhat higher for tax year 2019 on account of inflation. The IRS reports that they are:

Married filing jointly: $24,400 (up $400 from last year)
Married filing separately: $12,200 (up $200)
Head of household: $18,350 (up $350)
Single: $12,200 (up $200)
The standard deduction reduces the amount of your income that’s subject to federal taxes. So, if a married couple filing a joint tax return are eligible for and choose to take the standard deduction on their 2019 return, they would not be taxed on the first $24,400 of their taxable income from 2019.

5. Higher income brackets
Income tax brackets are also somewhat higher for tax year 2019 than they were for 2018 on account of inflation.

The IRS reports that the tax rates and corresponding income brackets for 2019 are as follows for folks whose tax filing status is single:

37% tax rate: Applies to incomes of more than $510,300
35%: More than $204,100 but not more than $510,300
32%: More than $160,725 but not more than $204,100
24%: More than $84,200 but not more than $160,725
22%: More than $39,475 but not more than $84,200
12%: More than $9,700 but not more than $39,475
10%: $9,700 or less

2020 Tax Season Dates

2020 Tax Season Dates

2020 Tax Season Dates

Alright, it’s time bust out your calendars and circle some important dates so that you won’t make the mistake of waiting until the last minute to file your taxes.

While Tax Day isn’t until April, waiting until then is a recipe for disaster. Not only is waiting until April 15 more stressful than going Xmas shopping on Christmas Eve, but you’ll miss out on some of the benefits of filing your taxes early.

With that in mind, here are some important dates to keep in mind as tax season rolls around:

  • Late January 2020: The IRS hasn’t confirmed a specific date yet, but this will be the official start of tax season—the day the IRS begins accepting and processing your 2019 tax returns. So, if you have all your tax forms and information in order by then, you can get your taxes out of the way before the snow in your front yard melts.
  • January 31, 2020: You should have online access to your W-2 form—the form employees use to report their income—or have it delivered to you by your employer by this date. So, check your mailboxes! If you did freelance or contract work for a business or client, then you might get a 1099-MISC form that you’ll use to report your self-employment income. If you haven’t received your forms by the end of January, reach out to your company’s HR department to get that sorted out.
  • April 15, 2020: This is the dreaded “Tax Day”—the day your 2019 income tax return is due to Uncle Sam. It’s also the last day to request a six-month extension if you need more time to file your taxes. But an extension to file is not an extension to pay—you still need to pay the IRS what you owe in taxes to avoid paying a late penalty and getting charged interest on your unpaid taxes.
  • June 15, 2020: If you live overseas or you’re on military duty outside of the United States, your taxes are still due on April 15—but you’re given an automatic two-month extension to file your taxes (without needing to request one). However, if you file later than April 15, interest will be charged on the taxes you owe starting from April 15.
  • October 15, 2020: Got a six-month extension to file your 2019 taxes? This is the deadline to file those tax returns.

What if you’re self-employed and pay quarterly taxes (or estimated taxes) throughout the year? Here are the deadlines for your 2020 estimated taxes:

2020 Quarterly Tax Deadlines

First Payment April 15, 2020
Second Payment June 15, 2020
Third Payment September 15, 2020
Fourth Payment January 15, 2021
IRS Announces 2020 Mileage Rates

IRS Announces 2020 Mileage Rates

The Internal Revenue Service (IRS) issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile (including vans, pickups and panel trucks) for business, charitable, medical or moving purposes.

Beginning January 1, 2020, the standard mileage rates are:

57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
14 cents per mile driven in service of charitable organizations.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than five vehicles used simultaneously.

 

Tax Tips for 2020 and Beyond

Tax Tips for 2020 and Beyond

Tax season is just around the corner. It’s not something most of us enjoy thinking about or dealing with — indeed,  16% of respondents to an AARP survey said they’d rather spend a night at the airport than prepare their taxes, while 36% would just as soon visit the DMV.

If you approach tax season prepared, though, and you’re able to shrink your tax bill via some savvy moves, then maybe it won’t be so bad. Here are five valuable tax tips you can use in 2020 and in the years ahead.

Tip No. 1: Be organized

It’s a little late to do a great job with this tip, but it’s not too late. Ideally, have a folder or box where you place tax-related receipts and documents throughout the year. (After all, you might spend some money on a tax-deductible medical expense in May — and you don’t want to forget about it.) Once you’re sitting down to prepare your return, all the papers you need will be in one place. Even if you’re using a tax professional to prepare your tax return, it will be very helpful to be able to hand over all your necessary documentation instead of having to hunt for it.

Tip No. 2: Take advantage of IRAs and 401(k)s

It’s vital for most of us to be saving and investing for retirement, and it’s very helpful to do so using tax-advantaged accounts such as IRAs and 401(k)s.

There are two main kinds of IRAs and 401(k)s: traditional and Roth. Traditional accounts offer an up-front tax break: You contribute money on a pre-tax basis, thereby reducing your taxable income for the year of the contribution. If you contribute, say, $5,000, you deduct that from your taxable income and avoid paying taxes on it. With a 24% tax bracket, you could shrink your tax bill by $1,200.

Roth accounts offer a back-end tax break: You contribute money on an after-tax basis, so your taxable income isn’t reduced and your tax bill for the year of contribution doesn’t shrink. But, if you follow the rules, when you withdraw money from the account in retirement, it will be tax-free income.

Tip No. 3: Keep up with changes to tax laws

Next, it’s important to keep up with developments in tax law. Otherwise, you might not realize that the amount you can contribute to various accounts has changed or that certain deductions are no longer allowed. Some years offer more changes than others — the Tax Cuts and Jobs Act of 2017 ushered in lots of change, such as doubling the standard deduction and reducing various tax rates — rules that are in effect now, for your 2019 tax return that you’ll prepare in 2020 and for future years.

Tip No. 4: Be thorough and report all your income

It can be tempting or easy to omit some income when preparing your taxes — if only because you forgot some income. That can be a costly blunder, however, and one that can be prevented if you’re organized and keep good records of all your earnings. You might have a small job on the side, for example, or you may be earning a little extra income making and selling things online.

Many sources of income will send you end-of-year documents, such as the W-2 form from your employer or 1099 forms from your bank and/or brokerage detailing income from sources such as dividends or interest. That information also makes its way to the Internal Revenue Service, which is expecting you to report it. Failure to do so will likely be noticed.

Tip No. 5: Consider hiring a tax pro

Finally, because tax laws are so complicated and subject to change, consider not preparing your tax return on your own. If your situation is very simple, such as if you’re single, with no dependents, no investments, and no income other than a salary, you could do well to use a tax preparation software package.

But those with more complicated financial lives should consider using a good tax pro’s services. After all, he or she spends a lot of time keeping up with tax laws and knows about available strategies that can minimize your taxes. But don’t just sign up with a stranger at a kiosk you run across — ask for strong recommendations from friends or family or look into nearby enrolled agents (those who are authorized to represent you before the IRS) and interview a few before selecting who to hire.

Need more info or need a question answered? Feel free to contact us and give us a call.

Federal Tax Deadline Oct 15, 2019

Federal Tax Deadline Oct 15, 2019

Tomorrow is the federal tax extension deadline! Get your affairs in order today!

Call us for more info.

#taxtips #taxextension #taxsantaana #taxesorangecounty #taxescalifornia #accountingnews #taxnews