I have been trained well in tax issues and have prepared tax returns for some years. Invariably, I have found that even the most intelligent persons can be confused when it comes to understanding certain tax issues and concepts. This is understandable. I had prepared my own tax returns, as well as those of friends and relatives for years, but until I took on extensive training, I had not known just how much I did not know or understood about taxes.
Here is a myth: It is commonly believed that all Certified Public Accountants (CPA's) and lawyers know all about taxes and understand them. When I was preparing taxes for the public, I had many CPA's and lawyers as clients. Knowing accounting, or law, and knowing the tax code and rules are two different things. Unless one is trained specifically in the tax code and rules, one is not necessarily competent in preparing tax returns.
There are many issues that can be discussed about taxes that can be helpful. This article is my first offering to explain some of these issues. More articles on additional issues will follow.
Two basic questions are commonly asked during the tax season: What are the qualifications to claim someone as a dependent on federal tax returns? And, what are the rules to claim the Earned Income Credit (EIC) for dependent children?
DEPENDENT:
- You must have provided more than half the support for that person.
- A relative does not have to live in the same house. A non-relative must live in the same house all year.
- Must be a U. S. citizen.
- He or she must not have earned more than their personal exemption, which for 2007, was $3,400 (Your Adjusted Gross Income, or AGI had to be equal to or less than $117,300. For incomes greater than $117,300, a worksheet had to be used to compute the personal exemption.)
Claiming ependents allow you to deduct their personal exemption from your earnings. It does not mean you can get an EIC credit for them.
EIC (EARNED INCOME CREDIT)
A QUALIFYING CHILD MUST MEET THESE QUALIFICATIONS:
- Must be a relative, such as a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew)
- The person must have lived in the same house for at least half the year
- The person must be under 19 years old or a full time student and under 24, or any age and permanently and totally disabled
A qualifying child allows you to deduct their personal exemption from your earnings as well as take an EIC credit.
