Being claimed as a dependent student for college while owning a SMLLC help

[ZachV]

Good day,

For the 2022 tax season, I was 19 years old, and my parent did not claim me as a dependant because there was no write-off for them. For the 2023 tax season, however, I will be starting college in the next week, and since they provide more than 50% of care. My question is that I own my own SMLLC; this year, I will most likely not make more than $10,000 max, and after write-offs and expenses, it will probably be no more than $3000 net income. I am having a difficult time seeing how much money I can make while still being claimed as a dependent and going to college. Will I be safe running my business and making money while still being able to be claimed, allowing them to deduct me from their taxes and receive the AOTC credit? Thank you

[ZachV]

I should also clarify that part of the reason I am trying to verify this is that my parents can't claim me as a dependant, that I will pay for my first semester, and not them. 

[VolvoGirl]

If you are under 24 and a full time student they can claim you no matter how much you make.  Even if they don't claim you (like on their 2022 return) you have to say on your return that you CAN be claimed.  

Who qualifies as a dependent
https://ttlc.intuit.com/community/credits-and-deductions/help/who-can-i-claim-as-my-dependent/01/267...

Is your SMLLC a S corp?  If not  it is an disregarded entity and you file it on schedule C as self employment income.  

[NCperson]

best to determine if they CAN claim you by answering the questions on this IRS tool, answer the questions as if you were your parents. 

Technically, the issue is not how much money you make as if you are under 24 and a student there is no income test to determine dependency.  What is important is whether you provide more or less than 50% of the expenses to support yourself. 

https://www.irs.gov/help/ita/whom-may-i-claim-as-a-dependent

(when it asks if the student lived with the parents all year, remember, that temporary absenses at college is still considered living at home per the IRS)

Further, this worksheet is how the IRS determines whether you are providing more than 50% of your expenses.  Simply the fact that you are paying the 1st semester doesn't necessarily mean you exceed 50% for the year. 

https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

[rjs]

You seem to be giving contradictory information.

• "how much money I can make while still being claimed as a dependent"
• "making money while still being able to be claimed"
• BUT, in your second post, "my parents can't claim me as a dependant"

Can your parents claim you as a dependent this year (2023) or not? If claiming you would not give them any tax benefit, that does not mean that they can't claim you. Is there a reason that they can't claim you besides your income or support? If they cannot claim you, why are you worried about how much money you can make if you are claimed as a dependent?

[Hal_Al]

Q. Will I be safe running my business and making money while still being able to be claimed, allowing them to deduct me from their taxes and receive the AOTC credit? 

A. Yes, if you are a full time student.

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for parts of  5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on himself.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

If you do not meet the 5 month fulltime student rule, then you look to see if you can be a dependent under the Qualifying Relative rules. In that case income does matter. You must have gross income of less than $4700 (2023). If you are self-employed in a business that provides services (where products aren't a factor), your gross income from that business is the gross receipts (in your case, the $10,000, not the $3000 net). If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. 

See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

[Carl]

Old thread I know.

For the 2022 tax season, I was 19 years old, and my parent did not claim me as a dependant because there was no write-off for them.

That is not relevant, as the parents have a choice, but the student does not.

For the 2023 tax season, however, I will be starting college in the next week, and since they provide more than 50% of care.

Read IRS Publication 970 at https://www.irs.gov/pub/irs-pdf/p970.pdf.  There is *no requirement* for the parents to provide the student any support. Not one single penny. The support requirement is on the student, and *only* the student. Basically, that requirement is:

If the STUDENT did NOT provide more than 50% of their own support for the entire tax year, then the parents *qualify* to claim the student as a dependent on the parent's tax return.

My question is that I own my own SMLLC; this year, I will most likely not make more than $10,000 max, and after write-offs and expenses, it will probably be no more than $3000 net income. I am having a difficult time seeing how much money I can make while still being claimed as a dependent and going to college.

There is no income threshold for a student that meets all the other requirements. The student can earn a million dollars (lterally!) and still qualify as a dependent on the parent's tax return.

Will I be safe running my business and making money while still being able to be claimed, allowing them to deduct me from their taxes and receive the AOTC credit?

In a nutshell, yes.

Let me try to clarify this support thing.

There are only two possible ways the student can  justify any claim to providing more than half of their own support.

1.) The student has a W-2 job or is self-employed and earns a sufficient income to justify a claim to providing more than half of their support. Additionally, whatever is earned must be more than the total of all third party income received for the entire tax year. Third party income includes, but is not limited to, scholarships, grants, 529 distributions, gifts from Aunt Mary, money from parents, money you find on the street, etc. etc. etc.

2.) The student is the *primary* borrower on a *qualified* student loan and sufficient monies are distributed from that loan during the tax year to justify the student's claim to providing more tha half of their own support. Additionally, the total paid out during the tax year must be more than the total of all third party income received for the entire tax year. Third party income includes, but is not limited to, scholarships, grants, 529 distributions, gifts from Aunt Mary, money from parents, money you find on the street, etc. etc. etc. 

Understand that there is no requirement for the parent to claim the student as a dependent on their tax return. They key word is "QUALIFY'.  So if the parents *qualify* to claim the student as a dependent, then if the student is required to file a tax return the student must select the option for "I can be claimed on someone else's return".  It flat out does not matter if the parents actually claim the student or not.

So while the parents may have a choice to claim the student or not, if the parents qualify to claim the student, then the student does not have a choice.