Can I lower my tax liability while being claimed as a dependent?
March 5, 2011 5:03 PM Subscribe
Can I lower my tax liability while still being claimed as a dependent?
Similar to this MeFite, I recently landed a full time position which has greatly increased my income. The trick is that I'll still be claimed on my parents' taxes as a dependent for at least the 2011 FY. This wasn't really a problem when I was just working summers, as the personal exemption covered most of my taxes. Now that I'm making substantially more, it looks like being a dependent will have a pretty big impact on my taxes.
I ran some numbers through Turbo Tax and the difference between being claimed and not being claimed seems to be a difference of several thousand dollars, due to various deductions and exemptions.
Is there anything I can do about that? Would it be worth spending some money to talk to someone like a CFP?
I understand why there's such a difference in what I would owe in taxes, but I don't want to needlessly pay extra money.
Similar to this MeFite, I recently landed a full time position which has greatly increased my income. The trick is that I'll still be claimed on my parents' taxes as a dependent for at least the 2011 FY. This wasn't really a problem when I was just working summers, as the personal exemption covered most of my taxes. Now that I'm making substantially more, it looks like being a dependent will have a pretty big impact on my taxes.
I ran some numbers through Turbo Tax and the difference between being claimed and not being claimed seems to be a difference of several thousand dollars, due to various deductions and exemptions.
Is there anything I can do about that? Would it be worth spending some money to talk to someone like a CFP?
I understand why there's such a difference in what I would owe in taxes, but I don't want to needlessly pay extra money.
Response by poster: However, since you have a full time job are you sure you can still be properly claimed as a dependent?
I should mention that I'm actually still in school right now as well, so I don't think that my employment status has any effect on how I'm claimed.
posted by Nonsteroidal Anti-Inflammatory Drug at 5:28 PM on March 5, 2011
I should mention that I'm actually still in school right now as well, so I don't think that my employment status has any effect on how I'm claimed.
posted by Nonsteroidal Anti-Inflammatory Drug at 5:28 PM on March 5, 2011
In general, to be a taxpayer’s qualifying child, a person must satisfy four tests:
* Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
* Residence — has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
* Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
* Support — did not provide more than one-half of his/her own support for the year.
So even as a student, if you're supporting yourself you probably don't qualify as a dependent. Though, I mean, I'm not sure how the IRS is supposed to know whether you're supporting yourself or not.
posted by ghharr at 5:44 PM on March 5, 2011
* Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
* Residence — has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
* Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
* Support — did not provide more than one-half of his/her own support for the year.
So even as a student, if you're supporting yourself you probably don't qualify as a dependent. Though, I mean, I'm not sure how the IRS is supposed to know whether you're supporting yourself or not.
posted by ghharr at 5:44 PM on March 5, 2011
I ran some numbers through Turbo Tax and the difference between being claimed and not being claimed seems to be a difference of several thousand dollars, due to various deductions and exemptions.
Several thousand seems slightly hard to believe. According to the FY10 1040 instructions, you only lose your exemption as a dependent, not the standard deduction. (Unless your income is really low, in which case we wouldn't be here) SO even if you are in the top bracket, the most extra you would owe would be 38% of $3650.
In other words, before you get bent out of shape, get a 1040 and the instructions and fill it out on your own. TurboTax is like a calculator: it is only useful when you know what it is doing for you.
posted by gjc at 8:04 PM on March 5, 2011
Several thousand seems slightly hard to believe. According to the FY10 1040 instructions, you only lose your exemption as a dependent, not the standard deduction. (Unless your income is really low, in which case we wouldn't be here) SO even if you are in the top bracket, the most extra you would owe would be 38% of $3650.
In other words, before you get bent out of shape, get a 1040 and the instructions and fill it out on your own. TurboTax is like a calculator: it is only useful when you know what it is doing for you.
posted by gjc at 8:04 PM on March 5, 2011
Response by poster: ghhar: Right. In addition to also being in school, I'm not "more than one-half of his/her own support for the year."
gjc: I used Turbo Tax, but I've previously done my taxes by hand. It at least passed my smell test FWTW, and everything it showed my made sense. I don't have the info with me, but due to several credits and additional deductions/exemptions (i.e., credits for paying tuition), I came up with practically zero liability.
I suppose a lot of this is credits and exemptions that would be moving from my parents to me, which might be my main problem here - the government's going to see that same amount of money from my entire family either way, I just end up covering more than I'd prefer.
I can definitely double check my numbers, though, to make sure I'm not completely pulling things out of left field.
posted by Nonsteroidal Anti-Inflammatory Drug at 10:41 PM on March 5, 2011
gjc: I used Turbo Tax, but I've previously done my taxes by hand. It at least passed my smell test FWTW, and everything it showed my made sense. I don't have the info with me, but due to several credits and additional deductions/exemptions (i.e., credits for paying tuition), I came up with practically zero liability.
I suppose a lot of this is credits and exemptions that would be moving from my parents to me, which might be my main problem here - the government's going to see that same amount of money from my entire family either way, I just end up covering more than I'd prefer.
I can definitely double check my numbers, though, to make sure I'm not completely pulling things out of left field.
posted by Nonsteroidal Anti-Inflammatory Drug at 10:41 PM on March 5, 2011
Response by poster: ...I'm not providing "more than..."
posted by Nonsteroidal Anti-Inflammatory Drug at 12:24 AM on March 6, 2011
posted by Nonsteroidal Anti-Inflammatory Drug at 12:24 AM on March 6, 2011
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As for reducing your tax liability: can you invest in a tax-deferred investment account such as a tax-deductible traditional IRA or a 401(k)?
However, since you have a full time job are you sure you can still be properly claimed as a dependent?
posted by jedicus at 5:25 PM on March 5, 2011