How to get a federal tax dependent deduction
Claiming a federal tax dependent deduction can save you lots of money. The term dependant refers to a qualifying child or a qualifying relative.
It is important to find out which of your family members makes you qualify for a federal tax dependent deduction and know if they qualify.
To determine dependent eligibility, the dependent must first meet the following requirements:
- Your dependant must pass the citizen or resident test
- They must pass the dependent or taxpayer test
- They must be a qualifying child or relative.
To be a qualifying child, the following requirements must be met:
- The child must be legally yours through birth, marriage, a descendant, adoption, or state care.
- The child must be younger than you and under 19 years old or 24 years old and a full-time student or any age if the child is disabled.
- The child must have lived with you for more than 6 months (exceptions apply for temporary absences)
- The child must not have provided more than half of his/her own support for the year.
- The child is not filing a joint return for the year
To be considered a qualifying relative, the relative must meet 5 qualifications;
- They must not be your qualifying child or the qualifying child of another tax payer.
- They must be related to you according to IRS specifications or live with you as a full-time member of your household
- They must meet the gross income test
- They must receive more than half of their year’s total support from you.
Claiming a dependent is very advantageous for any taxpayer as long as your dependent meets the requirements and qualifies for dependency status.
What credits and deduction are available to taxpayers with dependents?
If you have dependents, there may be some special tax credits and deductions you can use as a viable tax reduction vehicle.
The child tax credit is worth $1,000 for each qualifying dependent child who is under age 17 at the end of the year and may be partially refundable.
The credit, however, phases out when the modified adjusted gross income exceeds certain levels.
Parents who have a dependant child under 13 may be eligible for a non-refundable tax credit of between 20 percent to 35 percent of expenses depending on income level.
For educational tax credits, an opportunity to earn a tax credit of up to $25,000 per qualifying student for qualifying expenditures is available for each of the first four years of college and up to 40 percent of the credit is refundable if total taxes cut to zero.
Additionally, a lifetime learning credit of 20 percent and up to $10,000 of eligible expenses per year is available for undergraduates, graduates, and professional degree courses.
Both credits phase out for higher-income individuals and you can not claim both credits for the same student in the same tax year.
There’s also a deduction for AGI of up to $2500 for qualifying students loan interest. It, however, also phases out for high-income earners.
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