Who to claim as a dependent

Determining who you can claim as a dependent will have a big impact on your tax return. All dependents will generally allow you to deduct $3,650 from your taxable income in 2010. Certain dependents also make you eligible for additional credits that can be worth thousands of dollars. So make sure you don’t miss somebody who can be claimed.

Here’s a few tips from the IRS about who you can claim as a dependent (followed by a couple tips of my own):

Some tax rules affect every person who may have to file a federal income tax return – these rules include dependents and exemptions. Here are six important facts the IRS wants you to know about dependents and exemptions that will help you file your 2010 tax return:

  1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2010 tax return.

  2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
  3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.
  4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.
  5. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
  6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501.

And a couple additional tips…

7. A dependent may only be claimed by one person. If a person is eligible to be claimed as a dependent, only one person may claim that dependent. This can get confusing when parents are separated, or when another person such as a family member provides a home or support to a dependent. Certain tie-breaker rules apply in certain cases, but these can vary depending on the situation. It’s a good idea to seek professional advice when a dependent may potentially be claimed by more than one person.

8. “What if somebody claimed my dependent who was not legally allowed to do so?” This question is, unfortunately, far too common. Many people attempt to e-file their tax return, but get an error message indicating a dependent on the return has already been claimed. Usually it’s a case where an authorized person, such as a parent who is no longer in the picture, has filed a return claiming the dependent. Unfortunately, when this happens, the person who has the legal right to claim the dependent will have to file their return by mailing a paper copy. The SSN has already been “used” in the IRS e-file system and can’t be used again. The IRS will process the paper return, and frequently process a refund when it is present, but then both parties who claimed the dependent will receive letters from the IRS demanding proof that the child is actually a dependent. It will take some time, but the situation will get sorted out by the IRS…and the person who wrongfully claimed the dependent will have a lot of problems.

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