Dependent Workflow

[jonblauch]

In Turbo Tax, my child qualifies as a dependent, but I am choosing not to make her one. But TurboTax does not provide that option.  She meets the dependency test, but it is a net tax advantage for me not to claim her as her taxes are significantly less when I do not claim her as she is able to get the education tax credit based on her income level.  Anyone have any insight?  Thanks

[IsabellaG]

If you don't want to claim your child as a dependent, you simply don't add her information in the Personal Info section of the return, so her name is not on your return. 

Keep in mind that if she was under 24 at the end of 2018, and you met the qualifications to claim her but chose not to, she would not be able to claim the refundable part of the American Opportunity Credit.  The  IRS instructions for Form 8863 say:

If you were under age 24 at the end of 2018 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, you can claim your allowed credit, figured in Part II, only as a nonrefundable credit to reduce your tax.

You don't qualify for a refundable American opportunity credit if 1 (a, b, or c), 2, and 3 below apply to you.

1.You were:

   a.Under age 18 at the end of 2018, or

   b.Age 18 at the end of 2018 and your earned income was less than one-half of your support or

   c.Over age 18 and under age 24 at the end of 2018 and a full-time student and your earned income was less than one-half of your           support (defined later).

2.At least one of your parents was alive at the end of 2018.

3.You're not filing a joint return for 2018.

[jonblauch]

Really appreciate the reply.  I thought I had it understood, but I ran into another confusing point.  I have two daughters in college.  I was moving forward with claiming one as a dependent and the other not claiming her as a dependent.  I chose this path because of your explanation - the one child did not have enough tax to claim the full AOC, while the other one did...so I was claiming the former as a dependent and the later I was not claiming as a dependent. But.....I received a 1099-Q distribution payable to me which I used to cover the "non-dependent" college tuition.  So  I have to enter that in my return, but the 1099-Q looks like income since I do not have the dependent's tuition to offset that distribution.  So I think I am stuck claiming both my kids as dependents. Man, this is confusing.  Does my reasoning seem sound to you?  Thanks in advance

[IsabellaG · Accepted solution]

You are reasoning correctly. If the 1099-Q is in your name and SSN, then it's taxable to you without qualifying educational expenses to offset it. And you can't do that without claiming your daughter. And you can't offset 529 distributions with qualifying educational expenses and take an education credit for those same expenses (no double-dipping).