What are Qualified Dependents and Exemptions?

Do you know that your “dependents” are not just your minor children that live with you? A dependent can also be a parent, children that don’t live with you, as well as other relatives and non-relatives.

What is a dependent? By definition, a dependent is a qualifying child or a qualifying relative. Although there are specific rules, a dependent is someone who lives with you and who meets several tests, including the “support test”.

* For qualifying children, the support test means the child cannot have provided more than half of his or her own support for the year.

* For qualifying relatives, the support test means you generally must provide more than half of that person's total support during the year.

** Exceptions to the rule. For instance, parents don't have to live with you if they otherwise qualify, but certain other relatives do. If you're divorced and a noncustodial parent, your child doesn't necessarily have to live with you for the dependent deduction to apply.

Exemptions and your taxable income. Each dependent deduction is worth $4,000 on your 2015 federal income tax return, and reduces your taxable income by this amount. You'll lose part of the benefit when your adjusted gross income reaches a certain level. For 2015, the phase-out begins at $309,900 when you're married filing jointly and $258,250 when you're single.

Who cannot be claimed? Your spouse is never your dependent. Generally, you may not claim a married person as a dependent if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, national, or a resident of Canada or Mexico for part of the year.

Claiming an exemption for a dependent can be complex. Being able to claim someone as a dependent can lead to other tax benefits, including the child tax credit, education credits, and the dependent care credit.

At Summit CPA we are here to assist you with all of your tax and financial needs. Contact our office at (855) 977-7623 to schedule an appointment to find out how we can make your life easier.