Question

Your clients, Adam and Amy Accrual, have a 21-year-old daughter named April. April is single and is a full-time student studying for her bachelor’s degree in accounting at California Poly Academy (CPA) in Pismo Beach, California, where she lives with her roommates year-round. Last year, April worked at a local bar and restaurant four nights a week and made $18,000, which she used for tuition, fees, books, and living expenses. Her parents help April by sending her $300 each month to help with her expenses at college. This is all of the support given to April by her parents. When preparing Adam and Amy’s tax return, you note that they claim April as a dependent for tax purposes. Adam is insistent that they can claim April because of the $300 per month support and the fact that they “have claimed her since she was born.” He will not let you take April off his return as a dependent. Would you sign the Paid Preparer’s declaration (see example above) on this return? Why or why not?

Answer 1

Solution: To claim a child as a dependent, the chid must be either below age of 19 or if a student then below 24 years.

If the taxpayer or his spouse is considered as a dependent on some other's tax return, then the standard deduction that can be allowed on the taxpayer's return is generally limited to the greater of:

1. $1,050 or

2. The individual's earned income for the year plus $350(subject to standard deduction amount of $6,350, in general)

Here while preparing the tax returns of Adam and Amy, they have included April as a dependent. Therefore,April can be taken as a dependent in the tax return since April is still living on the support of her parents. But Adam can get standard deduction as limited as per the law in the return, disclosing April's income.

The standard deduction available is higher of

1.$1,050 or

2.$18,000+$350 but subject to $6,350

Therefore Adam can get a deduction of $6,350.