Wednesday, November 26, 2014

How the IRS Will Let Taxpayers Share a Dependent Exemption

Julian Block for AccountingWeb.com writes: The exemptions for dependents that you claim on your Form 1040 provide a slightly better break this year. They’re indexed, meaning adjusted to reflect inflation. For 2014, each exemption lowers the amount of your income subject to tax by $3,950, up from $3,900 for 2013. But beware of the 50 percent rule: It can cancel out any deduction. Learn the workaround before you file.

To claim someone as a dependent for 2014, the key requirement is that generally you provide more than half of his or her support. But suppose you and other family members share the support of a dependent, such as a parent or grandparent, and no one member of the group contributes more than half of that person's support. Does the over-half requirement mean that no member of the family group can claim the exemption? Not at all. The exemption remains available, courtesy of an often-missed break known as a multiple support agreement.
Under the agreement rules, the exemption goes to one of the members, provided the group passes a three-step test:
  • Someone in the group furnishes over 10 percent of the support.
  • The contributors, as a group, furnish over 50 percent.
  • Each contributor, had he or she furnished over 50 percent, could have claimed your parent.
When, as is usually the case, more than one contributor puts up over 10 percent for 2014 and qualifies for the exemption, you must agree among yourselves on who takes it. The decision is binding only for 2014. You and the others can take turns year by year in claiming the exemption. [snip].  The article continues @ AccountingWeb.com, click here to continue reading....

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