Income Tax Dependent Deductions

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Dependents are people that you provide support for during the year that you are able to claim on your income tax return. In order to claim dependents, you must file your taxes using either form 1040 or form 1040A. The Internal Revenue Service has strict rules on who can be claimed and how much can be deducted for each dependent.

Dependent children

In order to claim a person as a dependent on your tax return, the person must qualify as either a dependent child or dependent relative. Dependent children must be under 19-years-old at the end of the tax year the person is being claimed. However, the age limit is extended to 24 if the child is a full-time student and the IRS does not have any age limit for a permanently disabled child.

Dependent relatives

Dependent relatives cannot be dependent children of another taxpayer unless the taxpayer is not required to, and does not, file a tax return. In addition, the dependent must either be a qualifying relative, such as a parent or other direct ancestor, stepparent, sibling, child, uncle, aunt, niece or nephew or have spent the entire year living with you. Finally, the dependent must have less than $3,700 in income (as of 2012) and you must provide more than 50 percent of the person's support.

Significance

Each dependent that you claim on your tax return reduces your taxable income for the tax year. The amount of the deduction can be adjusted each year for inflation. As of the 2012 tax year, each exemption decreases your taxable income by $3,700. For example, if you claim two dependent children on your tax return, your taxable income would be decreased by $7,400.

Limitations

If your adjusted gross income is too high, the value of the exemptions you claim for your dependents may be reduced depending on your filing status. As of the 2009 tax year, the value of the exemptions decreases at various income brackets. If your adjusted gross income exceeds $125,100 and you are married filing separate, $166,800 and you are single, $208,500 and you are a head of household, $250,200 if you are married filing jointly or a qualified widower. The value decreases two percent for every $2,500 ($1,250 if you are married filing separately), up to 1/3 of the value of the exemption. As of the 2009 tax year, the value cannot be reduced lower than $2,433.

Misconceptions

A person can be claimed as a dependent on one tax return only. For example, if two parents file separate tax returns, a child can be claimed on only on one of the returns. If the parents do not agree, the IRS has tie-breaking rules. If only one of the parents is the biological parent, that parent can claim the child. The parent who the child lived with the longest is entitled to claim the child. If the child splits time evenly, the parent with the higher adjusted gross income is entitled to claim the child as a dependent.

References

About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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