Tax Question

[lrgche]

I have a tax question from my parents that I don't know the answer to yet, so any help would be appreciated.

My brother is 22 years old and is still in college. He worked a co-op job for part of the time this past year and made some decent money, more an he ever had in prior years. My parents are trying to determine if they can still count him as a dependent on their taxes. The info we had read so far says that if they provided more than 50% of his support then they can count him. The biggest question really is:Does paying off the loan on his car count as support?

(hoping to win the iTunes gift card too!)

[pochax]

i am not sure we have any tax experts here, but them paying off a loan would count as support provided that they were not co-signed on the loan (then they are just paying off their own loan). also do they contribute or pay for his college? that would be support. remember that complete records for all these transactions would need to be saved in case of an audit.

[KrozFan]

I'm not a tax pro but I'm pretty sure that if you're in college and still live with your parents they can count you as a dependent. If your brother is living on his own then it gets tricky. I don't think paying for the car counts as support, but putting a roof over his head and feeding him counts. Really though you should ask a true tax professional, I think H&R block had something where you can submmit a question to them for free but it's only until the end of the month, check it out ASAP.

[grandmaks]

I did not know you could still claim your child while going to college, but sure makes sense to me. You are providing shelter, food and misc.

[carodoo]

The child has to be under 24 years old and a full-time student for at least 5 months of the year. He meets the age requirement, so if he met the full-time student test they can claim him as a dependent. Also, he had to live with them for more than half of 2008 and they had to pay more than half of his support. The car loan could count as support. Support includes "the cost of a car bought for a dependent as support. If you buy a car but register it in your own name, the cost of the car is not support provided by you, but any out-of-pocket expenses you have for operating the car are part of your support contribution." - Source: J.K. Lasser's 'Your Income Tax 2009', page 437. You may have already checked out www.irs.gov. If not, Publication 501 has a worksheet (Worksheet 1) that you can fill out to determine if you paid over half of the support. It's accessible on the irs website. - Carolyn

[pochax]

Carolyn - you rock!

[Neha]

yes...if the parents co-signed the loan of the car, and they are paying it off, then it counts...they can count him as a dependant

[lrgche]

Thanks to everyone who has replied so far. Most of the info I already knew or at least had the same basic idea.

Here's some more details that make a difference and makes it a little muddier:

1 - He was at school full time 1 semester Spring 2008, for the summer and fall semesters he was a co-op student, registered at school and considered full time
2 - During the summer and fall he had a co-op job making like $15,000 dollars
3 - My parents did pay for rent during the spring semester, receipts, but what about putting a roof over his head and food on his plate during the summer and fall? How do you monetize that and then how do you document that for tax purposes?
4 - They did pay for college expenses, that part is easy, but that alone does not make up the 50% support needed in order for them to count him as a dependent.
5 - The car is in my parents name, he is the only one that drives it. Does that mean support would be just gas, insurance, maintenance? Or the cost of the car, i.e. monthly payments? He pays for his own gas.

[Westsox]

He can be claimed as a dependent by parents, however he must not check box 6A on Form 1040 when he files his own tax return. He cannot claim an exemption for himself if he is claimed by his parents.

Depending on their tax situation, the deduction may be more beneficial to the parents than to the son. If they are in a 25% tax bracket and he is in a 15% tax bracket, they would receive a greater tax savings by claiming him as a dependent. Tax savings at 25% would be $ 875 (3,500 * 25%). Tax savings at 15% would be $ 525 (3,500 * 15%).

[lrgche]

Thanks for the reply. That is a good point that I have already made sure they are aware of.

The main question really is:
How do you monetize and document providing the support for tax purposes? Things like food, shelter, clothing, etc.

We all know that my parents provided my brother with support, but how do you handle that in terms of an AUDIT?

[Westsox]

In the event of an audit, which is actually quite rare, the fact that they claim him as a dependent on their return and he does not claim himself as a dependent should be sufficient to satisfy any questions posed by the IRS. If both parents and child claim an exemption, that will raise a red flag and mat create a problem.

[Rich679]

Only if the parents co-signed the loan of the car, and they are paying it off, then the loan counts. Anyway, to learn more on tax filing visit, http://www.lothamer.com/ .

[Clarinda Della]

It sounds like you want to deduct the expenses like the property is a business project, but you also want to claim the property as your primary residence. I don't think you can treat it like both for tax purposes. Check with a CPA on what will work out best for you.If it is a for profit business then you can deduct the expenses when you pay income tax for the business. If it is a primary residence, then you can add the expenses for these improvements to your cost basis for the house when figuring your capital gain on the sale. You can't do both.

[dmoseley]

We received a settlement from a lawsuit in 2009. We did not receive a 1099. It was for personal injuries from a pesticide spraying. Do we need to claim this on our 2009 taxes? THank you and God bless.

Deanna

[clydewolf]

Dmoseley,

1099's do not need to be mailed until January 31, 2010. If you are looking to receive a 1099, you should wait a few days after February 1, 2010.

Court awards are sometimes considered income and sometimes they are not. Generally you look at the income that is being replaced by the court award. When that that is being replaced was taxable income, then the award is taxable in the same manner.

IRS Pub 525, Taxable and Non-Taxable Income may help you determine the taxability of your award. Here is a link: http://www.irs.gov/pub/irs-pdf/p525.pdf