First, who claims the student as a dependent?
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited institution and:
Is enrolled as a full time student for any one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:
the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)
Then:
The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story.
A few things I want to point out here.
1) The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”. To reiterate:
If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.
2) 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. To reiterate:
If the STUDENT did not provide MORE than 50% of THEIR OWN support, then the parents qualify to claim the student as a dependent on the parent's tax return.
3) The student's earned income *does* *not* *matter*. There is *no* earnings limit or threshold. The student could earn $100,000 during the tax year and still qualify to be claimed as a dependent on the parent's tax return.
EDIT: Bumped the mouse and posted before I was done.
As far as someone starting their own company or corporation, so long as they're 18 or older their dependency status is irrelevant. However, when filing the tax return there are two possible questions that make be asked. (wording not exact)
1) Does this tax filer *QUALIFY* to be claimed as a dependent? In David's case, he would answer yes.
2) Is this tax filer *ACTUALLY* claimed as a dependent on another tax return? This question could be answered yes or no, depending on if he was actually claimed as a dependent on someone else's tax return.
