Who Claims Who? Tax Tip

When a young person (child/teen) living with their parents files their taxes for the first time, should someone be there to oversee the process? Yes! It would help if they both knew what they were looking for when it comes to who should claim the young person for the exemption. Let me see if I can explain this so you will understand.

Legally, the parent should claim the child/teen since they have provided more than 50% of their care (lodging, food, and overall support) for more than 6 months of the calendar year. After all, let's face it, not too many teens make much more than the single standard deduction amount each year. As long as the child/teen is living with and being supported by the parent, they can be claimed as a dependent on their parents return.

So, when filing your taxes as a child/teen, if you are still in school, living at home, and being supported by your parent, ask if they will be claiming you on their tax return as a dependent. Your tax return should reflect Single status, and ZERO exemptions. You will get to use the current standard deduction amount ($5350 for 2007) to reduce your taxable income (most likely wipe it out altogether) and any tax you may have will be minimal compared to your parent.

For example, if a child/teen makes less than the standard deduction for the filing status "Single" which equals $5350, then they will receive back all of their Federal withholding for the year. Like this:

Adjusted Gross Income: Up to $5350 .00

Single Standard Deduction: - $5350.00

Taxable Income: $ 0

Refund: $ All Federal Withholding for Current Return

As long as the taxpayer doesn't owe back taxes, or child support, they would get back all of their Federal withholding. The same is true of most states however they are not as forgiving with what they consider the bottom line to be taxable. Most young people receive back some of the withholdings for their state.

If the child/teen makes the mistake of claiming themselves on their return, it could well cost the parent as much as $1500.00 of their deserved refund. So, be careful, respect your parents, and ask questions before filing your taxes as a young person. Make sure you should be the one taking that personal exemption amount, as most of you will wipe out your taxable with the standard deduction amount.

Parents, if this happens to you, you can resolve the problem by filing a paper return with the child/teen on your return. The IRS will then send each of you a letter asking them if either used the exemption incorrectly. The child would need to respond to the letter explaining the error in using that exemption, thus allowing the parent to utilize the exemption on their return. There is no need for the parent to respond to the letter, as they did not use the child in error. The IRS should then correct the situation and allow the parent's return to be properly processed for their refund.

1st Day to E-file is Here!

Today was a long day! It was our first day for e-filing as the IRS will not accept any Federal tax returns until 8:00 a.m. EST, and they will not be reviewing them for release for bank products for those taxpayers that are in hot pursuit of a FAST REFUND! Still, it was a faster day than the past four months have been and more challenging to say the least. Tomorrow will bring more new clients and lots more adventure!

Another day, another e-filer!

Fasten Your Seat Belts, Tax Season is Coming!

As the 2007 tax season fast approaches, we are preparing at the office for the influx of work to begin on the 2nd of January 2008. We currently spend our days doing bookkeeping for our client base, and brushing up on the newest TaxWise software program. We are also getting things ready for our annual meeting with our satellite offices here at the office.

It's been educational this past month, what with working on client's books, preparing payroll, learning Spanish, and divvying up supplies for the satellite offices. What we are all looking forward to now is the onset of the season. I am told it is a hectic six to eight weeks, working 12 - 14 hour days, all in an attempt to assist as many of our current tax clients and as many new clients as is possible with filing their tax returns.

I won't lie. All of this will be a bit overwhelming if it hits all at once. So, I plan on fastening my seat belt and preparing for the fast and furious ride!