Tax Tips for Parents of Dependent Adults
Income taxes are often one of the largest expenses families face each year. The Internal Revenue Service (IRS) has tax laws in place to reduce the burden of income taxes on those who are responsible for dependents. Young children typically qualify as dependents, but grown children can also qualify. Parents who provide for grown children may stand to save money if the child qualifies as a dependent.
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Qualification Rules
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An adult child must meet a variety of tests set forth by the IRS to qualify as a dependent. If you attempt to claim a child as a dependent when they do not actually qualify, it may cause errors in your tax return. According to the IRS, an adult child must meet the following criteria to qualify as a dependent: gross income must not exceed $3,650 and you must have provided at least half their total support during the calendar year. If the child lived with another parent or relative for more than half the year, you may not be able to claim him as a dependent.
Dependent Tax Returns
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Just because you can claim a child as a dependent, it does not necessarily mean that the child is exempt from having to file a tax return. Parents of dependent adult children should check whether children are required to file tax returns. According to the IRS, dependents must file tax returns if unearned income was more than $950. Unearned income includes income earned from interest-bearing accounts and stock dividends paid. In addition, if a dependent child earns income from self-employment a tax return may be required. The IRS says that anyone who earns $400 or more from self-employment must file a tax return.
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Keep Track of Dependent Income
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Since the income of adult children determines whether they can be claimed as dependents, it is important to keep track of your child's income. If an adult child dependent's income is near $3,650 by the end of a year, it may be financially beneficial to the family for the child to stop earning income for the rest of the year. As soon as income exceeds that level, you can no longer claim the child as a dependent, which can result in hundreds of dollars in additional income taxes.
Considerations
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The net effect of claiming an adult child as a dependent depends on your income tax bracket. According to TurboTax, in 2010, taxpayers are granted a deduction of $3,650 for qualifying dependents. If you are in the 33 percent tax bracket, the deduction will save you around $1,200, while if you are in a lower tax bracket, the deduction will save you less.
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