Claiming qualifying dependents on your taxes can save you thousands of dollars. But who qualifies? This is one of the top tax questions every year since it can be difficult to apply the rules to different living situations, especially with the changing dynamics of families. If you need help deciphering whether your son at college, a cousin who stays with you for the summer or the new family pup qualify as dependents, we'll break it down for you.
Why claim someone as a dependent? There are several reasons to claim dependents on your taxes, but here's the biggest one: substantial savings. For every qualified dependent you claim, you reduce your 2016 taxable income by $4,050. So, if you're claiming multiple dependents, those savings will add up quickly.
Claiming dependents is also a great way to capture other savings. Dependent rules can trigger other benefits, such as the child tax credit and earned income tax credit, which are available if you have qualified dependents. You may also be able to write off your dependent's daycare expenses, medical expenses and various tax credits that involve children or family.
Who qualifies as a dependent? There are generally two types of dependents: a qualifying child and a qualifying relative. Each type of dependent is subject to different rules, but all dependents must first satisfy the following requirements:
-- They must be a U.S. citizen, U.S. national, U.S. resident or resident of Canada or Mexico.
-- You can't claim someone who takes a personal exemption for himself or claims another dependent on his own tax form.
-- You cannot claim someone who is married and files a joint tax return.
Qualifying child. A qualifying child is a child that meets the age and eligibility requirements listed below. That means that you may be able to claim your 8-year-old son or teenage sister or even your grandchild as a dependent on your tax return if:
-- The child is related to you, whether he or she is your child, sibling or grandchild.
-- The child is under age 19 (if a full-time student, then under age 24). There is no age limit if the child is permanently and totally disabled.
-- Generally, the child must live with you for more than half the year, although several exceptions apply.
-- The child cannot provide more than half of her own support.
-- Finally, you must be the only person claiming the child. This requirement usually comes into play with children of parents who are no longer together. In those circumstances, you need to agree on who is going to claim your child since only one of you can claim her. If there are any discrepancies, follow the Internal Revenue Service's "tie-breaker rules" that establish income, parentage and residency requirements for claiming a child.
Qualifying relative. Many people provide support to aging parents, other close relatives and nonrelatives like a boyfriend or girlfriend. But just because you regularly mail your mother a check doesn't mean you can claim her as a dependent. If you want to claim a relative as a dependent, first make sure they meet the following requirements:
-- Your relative may not have taxable income more than $4,050 in 2016.
-- You must provide more than half of your relative's total financial support each year.
-- Your nonrelative, such as your boyfriend, girlfriend or friend, has to live with you the entire year, but relatives do not have to live with you.
-- Lastly, you must be the only person claiming them.
Qualifying pet. If you're wondering if pets count as dependents, you're not alone. Like children, pets rely upon you to support them, and -- counting veterinary bills, grooming, licenses, cleanup and repairs caused by pet damage, not to mention the cost of the pet itself -- it can get expensive.
However, for taxation purposes, a dependent must be human. So, unless your little furry friend is considered a business expense, like a guard dog used to protect your business, or claimed as a medical expense, like a guide dog, you cannot claim your pet as a dependent.
One of the biggest tax benefits available is the deduction for qualifying dependents. They can lower your tax bill immensely and help you get the refund you deserve. Providing support for other people, like children and aging parents, is a huge personal sacrifice and financial undertaking, but you will be rewarded with gratitude and substantial savings on your tax bill.
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