Business & Financial Solutions
TAX HELP SERVICE AND PREPARATION
Now that your “baby” is all grown up, graduated from high school, and packing up to leave for the first semester at college, how does your tax household look like? Do you continue to claim him or her as your dependent? Or does your college student child file their own tax return as a single person? The following article will answer these questions and a whole lot more.
THINGS EVERY PARENT SHOULD KNOW ABOUT FILING TAXES.
If the parents are divorced, then the custodial parent can claim the child as a dependent, unless they sign a release allowing the non-custodial parent to do so. This release must be attached to the noncustodial parent’s tax return. You can claim your child until they are 24 years old, if they are a student, if the child has less than $4050 annual income, or if they live with you 50% of the time and you are providing their monetary support ( figure the value of free rent, as half their support) if living at home. If the student makes $5950 or more annually, then they are required to file a separate return as an independent tax filer. If the child is over 24 years old, ever had a child of their own, or been married, the IRS considers them to be an independent filer. If a child files as a dependent, it is very important they list on there who are claiming them on their taxes, also, if claiming dependency, they are not eligible for the tax credits, “American Opportunity Tax Credit” or the “Lifetime Learning Credit,” however, the tax filer claiming them is eligible for these credits.
WHAT FORMS DO I NEED TO FILE MY TAXES?
If your taxes are being filed by an agency that files for free, you need not worry about the forms because the agency will provide them for you. However, if you are doing it alone, you will need to complete the 1040EZ form, if you are unmarried and have never had any children. Or, if you have children or are married, you can file the form 1040 or 1040A. Also, ensure that you read all IRS provided manuals and information first. if you are requesting any educational tax credit, you will need to complete the 8863 form, which has a step-by-step guide of instructions available.
WHAT KIND OF TAX BREAK WILL I RECEIVE AS A PARENT OF A STUDENT?
There are a number of tax breaks that parents may take when filing for their dependent children. For low to moderate income filers, there is the “Earned Income Tax Credit”. Depending on how many dependent children you are filing for, this tax credit could be between $3400 for one child to $6,318 for three or more children.
There is also the “Child Tax Credit”, this can be up to a $1000 credit off your current taxes for each dependent child under the age of 17 if you meet the income limits of $75000 and under for a single parent, and $110,000 for a couple. However, the credit is non-refundable and only counts towards the tax you may owe. Then there are the two popular tax credits regarding students. The “American Opportunity Tax Credit” and the “Lifetime Learning Credit.” For the first four years of college, each student gets a credit up to $2500. This is only if your income doesn’t exceed the allowable limit of $80,000 or less for single or $160,000 or less for married couples. The Lifetime Learning Credit is a different sort of credit, you can not claim it if you are claiming the American Opportunity credit for the same student. Only 20 percent of first $10000 of the student’s eligible tuition and fee expenses will qualify for this credit.
So one way or the other, your college student is going to have to file or be claimed as a dependent on a tax return. Based on the information I have provided for you here, you can be the judge of which it will be. If you have any further questions, always consult a tax professional before making any life altering decisions. Because, you don’t want to file your taxes incorrectly and cause a costly mistake.
