Who has the the right to claim a child on on tax return if the child is taken care of by more than one person?

  I ran across this tax issue quite frequently last tax year.  I had a tax client say he took care of his son all tax year and the son lived with him most of the tax year. He says  his ex -wife does not even work but somehow she managed to file taxes and claim the child despite their agreement.
 A college friend of mine called me , the mother of his children claimed both the children. He and the mother of their children have a court-ordered split custody arrangement, the children live with her six months and live with him the the other six months of the year. He pays majority of the children expenses.

 I asked him who makes the money , he said he does.  If the children live with both parents an equal amount of time, the person with the highest AGI (Adjusted Gross Income) has the right to claim the children as qualifying dependents. Therefore, he has the right to claim the children. Unfortunately, the children's mother already filed a tax return, he cannot e-file.  He will  have to mail a paper tax return to the IRS.

The  IRS applies the tax-breaker rule when more than one person claims the same individual. My college friend would receive for the tax benefits of claiming the qualifying dependent  since he is the children's parent, the children lived with him six months out the year, and he has the higher AGI. If the mother already received the money, she will get audited and will owe the IRS the tax money back.

Refer to Tie-Breaker Rules below.

Only one person can use the same qualifying child.
Under the Tiebreaker Rule, the Child is Treated as a Qualifying Child Only By:
• The parents, if they file a joint return;
•The parent, if only one of the persons is the child's parent;
•The parent with whom the child lived the longest during the tax year, if two of the persons are the child's parent and they do not file a joint return together;
•The parent with the highest adjusted gross income (AGI) if the child lived with each parent for the same amount of time during the tax years, and they do not file a joint return together;
•The person with the highest AGI, if no parent can claim the child as a qualifying child; or
•A person with the higher AGI than any parent who can claim the child as a qualifying child but does not. ( www.irs.gov)


Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

Celebrities are not above the IRS.

 Lil Wayne thought the IRS was playing until the IRS threaten to seized his$ 11 million mansion for his tax debt of roughly $7 million.

 Other Celebrities who owe back taxes in 2012 include:

Lauryn Hill evaded taxes on a 1.8 million income. Maybe,she thought having six kids might get her a tax refund. Not!!

Pamela Anderson  owes $350 million in back taxes to the IRS and State of California. She has two tax liens on her assets.

Robin Thicke and his wife Paula Patton had a $492,583 tax lien against their Los Angeles Mansion.

Lindsey Lohan is walking around with rubber bands of money after her bank accounts were seized after failing to pay $233,904 in taxes.



 Smh, these celebs didn't learn anything from Wesley Snipes! Wesley Snipes is serving three years in prison for evading taxes on $40 million.


Locked Up!

Last minute Tax Charm planning tips

The New Year is just around the corner.  I hope everyone is enjoying all the holiday festivities. Now, let's get to business, tax business! There is still time for tax planning for the 2012 year. In this post, I will talk about some final tips on cutting your tax bill or getting a bigger tax refund.

Tax planning this year is more difficult due to the indecision about which tax cuts will expire and which tax cuts will be extended. All the same, there are still actions we can take to trim down our tax burdens.

-Get organized. Gather all cash receipts, contributable donations receipts, paid tuition receipts, IRA earnings statements, student loan interest payment receipts, and all other tax related documentation together.

-Gather up old clothing, toys, furniture, books, and anything else you don’t need to donate to a charity. This also helps with getting the house clutter-free for the New Year. Make sure you get an itemized receipt of everything you donate to claim on your taxes if you itemize deductions.

- Maximize your contributions to IRAs and 401Ks.  The benefit is it defers your taxable income and your money grows tax free.  Also, depending on your income, you may be eligible for a tax credit for contributing to 401K or a qualified retirement plan.

- Pay college tuition and/or continuing education expenses early before January 1st.  The Lifetime Learning Credit is still around for 2012 and I just read the American Opportunity Learning credit will be extended.

- If you own your home, pay January mortgage in December. December interest is billed on January’s mortgage bill, and you can deduct 2012 mortgage interest  expenses on your 2012 tax return.

See you taxpayers next time at Tax Charm!

 

Disclaimers:

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

The Fiscal Cliff and Tax Returns

 Thanks for visiting my blog, Tax Charm.   I will blog  about the latest tax issues for the 2012 tax year, tax recommendations and I will  personally answer your tax questions.

Today, I will discuss the effects of "The Fiscal Cliff" on the average American 2012 taxpayer, or at least what I consider to be  average.  Many of you have at least heard of the "The Fiscal Cliff."  You may heard about it on CNN, on MSN.com , or simply  read one of your Facebook or twitter friends statuses.
 
If you do not know what "The Fiscal Cliff" is or the possible effect of it on our country , I advise you to do your research!  Political debates and issues affect every single one of us.  I will go over what is meant by the fiscal cliff and its implications on tax returns. However, the fiscal cliff affects a lot more than tax returns.  Since I am not an economist or  an expert on the fiscal cliff, I'll just stick with what I do know and that is income taxes.

For starters, "The Fiscal Cliff" ( a term coined by Bernanke)  refers to the economic effects that could result from tax increases, spending cuts, and a reduction in the U.S. budget deficit.

Next, I  go over what it could mean for our tax returns if the President, Congress and policy makers do not come to an agreement .

Some  tax cuts are scheduled to expire  at the end of 2012 and will expire if the Congress does not extend them.

Payroll tax cut expires (payroll taxes go from 4.2% to 6.2%; your taxes go up 2%). Smaller payroll checks for all.

Income tax brackets all increase (10% to 15%, 25% to 28%, 28% to 31%, 33% to 36%, 35% to 39.6%)

American Opportunity Credit of $2500 for college tuition costs set to expire

Child tax credit reduced to $500 (from $1000)

Capital gains tax increases from 15% to 20%

Dividend tax rate will greatly increase from 15% to 39.6%!

Tax refunds will be delayed

Above is not an all inclusive list of possible tax return effects, there are other tax increases and credits that may expire or be changed that are not in my list. Please continue to do your own research.

No one knows for sure what will actually happen. Everything is up in the air as our policy makers make last minute decisions after procrastination. They seem to wait until the absolute end of the year every tax year.

I like to keep people informed. On a more positive note, I will like to wish you all a

Merry Christmas and a Happy New Year!

  Check out the following articles for more information on the "The Fiscal Cliff"

What is the Fiscal Cliff
Fiscal Cliff Impasse "Can a Deal still get done?" cnbc
www.cnn.com/2012/12/19/politics/fiscal-cliff/index.html



Disclaimers: 

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.