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Make sure
you claim all your dependents on your tax forms
Are you taking advantage of all the dependency exemptions you're entitled
to? If you have children living at home, it's easy to identify your dependents.
However, when an extended family lives together under one roof, or a family
supports someone living elsewhere, identifying dependents gets more complicated.
According to the Georgia Society of CPAs, here's what you need to know
about making the most of your dependency exemptions this tax season.
In general, for 2002, each taxpayer may claim a personal exemption of
$3,000. If you are married and file a joint return, you and your spouse
each claim a personal exemption. You can claim an exemption for your spouse,
even if he or she died during the tax year, provided that you did not
remarry.
In addition, a taxpayer is entitled to an additional $3,000 dependency
exemption for each qualified dependent. A child qualifies for an exemption,
even if he or she is born on the last day of the year.
To qualify as a dependent for tax purposes, an individual must meet
all five tests below.
The citizenship test.The person must have been a citizen of the United
States or a resident of the United States, Canada, or Mexico.
The relationship or member of household test. The dependent must be a
qualified relative or a member of your household for the entire year.
If the dependent is a qualified relative -- including members of your
immediate family or step family, foster child, immediate in-laws, aunts
and uncles, grandparents, and first generation nieces and nephews -- he
or she is not required to live with you. If the dependent lives with you,
he or she does not have to be a qualified relative.
The gross income test. The
dependent's gross income must be less than the amount of the exemption
allowance for the year ($3,000 in 2002). The gross income test does not
apply if the dependent is your child who is less than 19 years old at
the end of 2002, or less than 24 at year-end and a full-time student for
at least five months of the tax year.
The term "gross income" refers to taxable income items included
in the dependent's tax return. Nontaxable Social Security benefits and
nontaxable scholarship funds are not included.
The joint return test. If the dependent is married, he or she cannot file
a joint return with his or her spouse, unless the income of each spouse
is under the income limit for filing a return and the return is filed
for the sole purpose of claiming a tax refund.
The support test. You must be able to establish that you provided more
than half the cost of supporting that person. Support includes the cost
of shelter, food, clothing, education, health care, transportation, and
similar necessities.
In calculating support an individual pays for him- or herself, include
only amounts actually spent. Money the individual has available, but did
not spend, is not included.
In the case of divorced parents, the general rule is that the custodial
parent claims the dependency exemption even if the non-custodial parent
paid most of the child support.
However, the custodial parent may agree to waive the exemption by signing
Form 8332, Release of Claim to Exemption for Child of Divorced or Separated
Parents. The non-custodial parent attaches this form to his or her return
and claims the exemption.
If two or more persons together provide more than 50 percent of an individual's
support, but no one member of the group provides more than half, the individuals
may enter into a multiple support agreement.
Under this agreement, the dependency exemption may be claimed by any person
providing more than 10 percent of the individual's support. If you are
that person, you must have each person who contributes over 10 percent
sign IRS Form 2120, Multiple Support Declaration, which you submit with
your tax return.
If you are a high-income taxpayer, your deductions for personal and dependency
exemptions may be gradually phased out.
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