Did you know that you can reduce your tax liability by hundreds or thousands of dollars when you claim dependents on your annual income tax return? The IRS makes allowances for several types of relationships under the category of “dependents.” While minor children are the most obvious and well known category, other relationships may also quality for the dependent deduction. Knowing where to look and whom to ask is key.

How Does It Affect Your Taxes?

The deduction for dependents is one of the best tax benefits available to many families. For every qualified dependent you claim, your taxable income is reduced by $4,050. (This is the amount that applied to taxes for the 2016 tax year, filed in 2017. Many things could change for the 2017 tax year.) Claiming dependents also paves the way for possible tax credits, such as the child tax credit and earned-income tax credit.

Who Qualifies as Dependents?

Many criteria determine whether you can claim someone as a dependent. For starters:

  • the person must be a U.S. citizen or resident
  • the person may not claim a personal exemption for him- or herself, and may not claim another person as a dependent
  • the person can not be married and filing jointly

Qualifying Children

The IRS uses a broad definition of who may be considered a dependent child – including biological, step children, foster children, adopted children, half siblings and step siblings.

In general, for a child to qualify as a dependent on your income tax return they need to meet these criteria:

  • They must be under 19 years of age, or under 24 if they are a full-time student.
  • You must be the only person claiming them.
  • They may not have a gross income of more than $4,050.
  • You must provide more than half of their total annual support.
  • They must reside with you for more than half the year. (There is an exception for students who live much of the year at school.) 

Other Qualifying Relatives

Many of the rules for claiming another relative, such as an aging parent, as a dependent, are similar. They must live with you all year (although the IRS does make allowances for about 30 types of relatives who do not live with you). The relative may not have a gross income of more than $4,050. You must provide more than half of their annual support. And as with dependent children, they may not be claimed as dependents by anyone else. Before you claim them, you have to know how a relative is filing his or her own taxes, and whether someone else (in-laws, for example) might be claiming them.

What Else Can Be Deducted?

Common deductions associated with qualified dependents include daycare costs and medical expenses, along with other itemized deductions.

The accounting professionals at Preziosi Nicholson, in Millville, NJ, are experts in tax preparation. We can assist you in navigating the many tax rules to make sure you are getting the tax benefits you deserve. Call us today to begin putting your taxes in order: 856-794-8400.