This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Changing Family Dynamic May Lead To Tax Relief

It comes down to the definition of dependent.

The Internal Revenue Service makes a distinction between a qualifying child and a qualifying relative.

To be a qualifying child, the person would have to be a child, stepchild, foster child or sibling, and under the age of 19, or 24 if in college, who has lived with you for at least half the year. The taxpayer would have to provide at least half the support.

A qualifying relative can be a child who doesn't meet the qualifying child requirement, a parent or stepparent, grandparent, niece or nephew, aunt or uncle or in-laws, according to the IRS. They do not necessarily have to live with you, but you do have to provide at least half the support for that person. And that person's income cannot exceed the personal exemption â¿¿ $3,800 in 2012.

"Unlike a qualifying child, a qualifying relative can be any age," the IRS says in its Publication 17.

Taxpayers can take an exemption of $3,800 for each qualified child or relative who is a dependent.

Here are some examples from the IRS:

"Your mother received $2,400 in Social Security benefits and $300 in interest. She paid $2,000 for lodging and $400 for recreation." If you spend more than $2,400 to support her, supplementing what she spends, and her annual income is less than $3,800, you can claim her as a dependent and take the full value of the exemption.

"Your brother's daughter takes out a student loan of $2,500 and uses it to pay her college tuition. She is personally responsible for the loan. You provide $2,000 toward her total support. You cannot claim an exemption for her because you provide less than half of her support."

Usually the items that go into determining support are the cost of housing, food, clothing and medical costs, including doctor bills and medicine

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs