Solved: Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?
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New Member

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

Because of form 8615 and significant unearned income from a UGMA account, it's looking like overall taxes would be lower by losing the dependent exemption and also losing the requirement of taxing the unearned income at the parent rate.  Certainly it would simplify filings...

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Level 9

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

Not claiming the child as a dependent does NOT change the requirement for Form 8615.  It is still required, and that income is still required to be taxed at the parents' rate.

https://www.irs.gov/instructions/i8615/ch01.html#d0e38



In addition, as Carl's response indicates, if you choose not to claim the child as a dependent, the child can NOT claim their own exemption.


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6 Replies
Level 15

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

What are the ages of the adult children? There are situations where it doesn't change things if the parent "qualifies" to claim the child, regardless of weather they actually claim them or not.  If they will be over the age of 23 on Dec 31 of the tax year, then you can totally and completely disregard my response here.
New Member

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

18 to 22.  Where are these situations described?
Level 15

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

I'm just going to post it all in an answer, assuming they are in college. If they are, it can make a huge difference on education deductions.
New Member

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

Thanks.  TaxGuyBill's answer was simpler - I can't avoid 8615 anyway.  Sigh.  So much for having my kids responsibly file their own taxes, if they have to wait till october for my accountant to do MY taxes :(   Too bad there isn't a checkbox "just assume my parents are in the top bracket..."
Level 9

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

Not claiming the child as a dependent does NOT change the requirement for Form 8615.  It is still required, and that income is still required to be taxed at the parents' rate.

https://www.irs.gov/instructions/i8615/ch01.html#d0e38



In addition, as Carl's response indicates, if you choose not to claim the child as a dependent, the child can NOT claim their own exemption.


View solution in original post

Level 15

Are their disadvantages to UN-claiming my adult children as dependents, OTHER than the loss of deductions?

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

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 one academic semester that begins during the tax year, (each institution has their own definition of a half 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 will claim the student as a dependent on the parent's tax return and:

The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent, then:

The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option ieven f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Now here’s some additional information that may or may not affect who files the 1098-T. If the amount of scholarships/grants exceeds the amount of qualified education expenses, the parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

 If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6200, then the student should file a tax return so as to get those withheld taxes refunded.

 


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