Do you provide financial assistance to an older child or elderly relative? If you’re careful about observing the tax rules in this area, you can secure an extra dependency exemption on your 2016 tax return.
However, if you’re currently coming up a little short, you might decide to be extra generous around the holidays.
Generally, you can claim a dependency exemption for another family member – besides personal exemptions for yourself and your spouse, if married – if you provide more than half of the person’s support for the year and he or she doesn’t have gross taxable income above the personal exemption amount. The personal exemption amount for 2016 is $4,050. (The IRS recently announced that it remains the same in 2017.)
Also, you can’t claim the exemption if you’re someone else’s dependent, and an individual whom you’re claiming as a dependent isn’t allowed to take the personal exemption for himself or herself.
The tax law gives parents an edge because they don’t have to meet the “gross income test” for children who are under age 19 or full-time students under age 24. But you still have to worry about the “half-support test.”
For instance, suppose your 22-year-old daughter graduated from college in May and landed a full-time job in July. She expects to earn $25,000 in 2016, and you’ve been providing $2,000 a month in support to her. As things stand now, your daughter will provide more than half of her annual support for the year – $25,000 to $24,000. However, if you buy her a $1,500 laptop she needs for work this holiday season, the extra support pushes you over the half-support mark.