Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Dependents can create opportunities for deductions

- by Alan Duvall 

Published in Dayton Daily News   October 22, 2006 

Who’s your Daddy? 

In the tax world, savings abound for individuals who provide care for others. 

Federally, individuals are given an exemption deduction for taxpayer and spouse.  But there is an exception:  taxpayers cannot claim an exemption for themselves if they are claimed as a dependent on another’s return. 

Additional exemptions are provided for children under the age of 19, or under-24 if the person is a student who received more than half of the support and resided with taxpayer for more than half of the year(exception to residency rule for students).  A child of divorce may only be claimed by the non-custodial parent if specifically ordained by the court or consented by the custodial parent via Form 8332. 

A qualifying relative, or a non-relative who lived with you all year, may also be claimed as dependents if more than half of the support was provided by the taxpayer and the dependents had gross income less than $3,200. 

Bestowing both an exemption deduction and a credit, Ohio generally follows federal rules for identification of dependents.  One exception – an Ohio resident is granted a personal exemption whether or not that person is also also claimed as a dependent on another’s return.   

Back in Federal-land, the presence of children dependents may increase a taxpayer’s earned income credit (Schedule EIC), available to low-income households. 

Children dependents may also generate savings by way of child tax credits (Form 8901) or additional child tax credits (Form 8812).  

Continuing the dependent goodwill train, there are federal credits for child & dependent care expenses (Form 2441) and education expenses (Form 8863). 

Not to be up-staged, Ohio offers deductions for education expenses and education-related savings for dependents as well as a child & dependent care credit. Qualifying taxpayers with dependents may even be eligible for beneficially lower head of household or widow(er) federal rates of tax. 

Not enough children?  Both the Feds and Ohio offers tax credits and incentives to offset adoption expenses.

 The rules defining dependent status for the above provisions are not uniform and contain many exceptions and spelunker opportunities (thus adding Congressionally-mandated complexity to our world).   

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.