Who Can You Claim as Dependent on Your Taxes?

If you are a parent or taxpayer who supports relatives, you can benefits from various tax deductions, tax credits and lower tax rates directly related to dependents. The issue of claiming dependent on your tax return can be a tricky one, especially when it comes to non-children dependents. This article helps you to understand what is dependent, who can claim one, and what are the tax benefits you can obtain when claiming dependents.

A dependent can be a valuable addition to your tax return, decreasing your tax liability and maybe even earning you a refund. Every tax season, however, there is confusion about who exactly qualifies as a dependent.

Many people don’t realize that there are actually two different types of dependents: qualifying children and qualifying relatives.

These two categories have different requirements and are often treated differently by the tax code. Though both are considered “dependents,” if a credit refers specifically to a qualifying child, a qualifying relative does not count.

To be a dependent a relative must meet the following criteria:

-Residency: The relative must have lived in your house for the entire year unless the relative is one of the following: child, stepchild, foster child, descendant of any of them, brother, sister, half-brother, half-sister, stepbrother or stepsister, father, mother, grandparent or other direct ancestor (does not include foster parent), stepfather, stepmother, niece, nephew, uncle, aunt, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
-Support: The relative’s annual gross income must be less than $3,500 and you must be responsible for providing more than half of his for her support

Support includes amounts paid or incurred for the following items:

-Food
-Lodging
-Clothing
-Education
-Medical and dental care
-Recreation
-Transportation

Any item that is paid for the household as a group (for example food for the household members) and not directly for the relative, should be allocated evenly between the members of the household.>

Tax Benefits related to dependents

The tax law provides for several tax credits, tax deductions and other tax benefits resulting from claiming child and or relative dependents. Here is a list of those benefits:

-Personal exemptions
-Filing status – head of household
-Child tax credits
-Child and Dependent Care Credit

In the discussion below we shall analyze the various benefits and describe how to maximize them when you file your annual tax return.

Personal exemptions

Personal exemption works like a tax deduction, it reduced the taxpayer gross income by the amount of the personal exemption and results in a lower taxable income.

A word of caution: you cannot claim someone as dependent if he or she can be claimed as dependent on someone else’s return and if in fact he or she is claimed as dependent on someone else’s return. Additionally, personal exemptions are subject to phase-out limits, thus the higher the income shown on your 1040, the more you loose from your personal exemption deduction. For current year phase-out calculation, please refer to IRS Publication 501.

You may be eligible to claim personal exemption for any qualifying dependent (see discussion above). The amount of the personal exemption is set up by the IRS as it is indexed annually for inflation. For 2009, personal exemption is set up as $3,650, up from $3,200 back in 2005.

Taxpayers will lose some of their personal exemptions if adjusted gross income exceeds certain threshold amounts. However, taxpayers can lose at most two-thirds of their personal exemptions. You’ll need to use a worksheet in IRS Publication 501 to calculate your personal exemption amount if your adjusted gross income is over the threshold amounts shown below.

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