Parents Should Supervise Tax Preparation of Working Child

 By Lavestia Gaston – Harper Tax Accountant, Registered Investment Representative

Every year when many parents prepare their tax returns they find out that their qualifying dependent has already filed their tax return online or has been prepared by a friend causing the parent to lose that very important exemption for their return.

When tax season starts everyone due a refund gets excited and wants to file for that refund no matter how small or large it may be. When your child makes this error please review the rules that the IRS has in place.

Exemptions reduce taxable income.  There are two types of exemptions: personal exemptions and exemptions for dependents. You can deduct $3,900 for each dependent you claim on your 2013 tax return. A dependent is either your qualifying child or qualifying relative.

1. Dependents may have to file.  If you can claim someone else as your dependent on your tax return, that person may still be required to file his or her own tax return. Whether they must file a return depends on several factors, including the amount of their gross income (both earned and unearned income), their marital status and any special taxes they owe.
2. Dependents can’t claim a personal exemption.  If you can claim another person as a dependent on your tax return, that person may not claim a personal exemption on his or her own tax return. This is true even if you do not actually claim that person as your dependent on your tax return. The fact that you could claim that person disqualifies them from claiming a personal exemption.

Remember that a person must meet several tests in order for you to claim them as your dependent. See Publication 501 for the tests you will use to determine if you can claim a person as your dependent.

What do I do when my qualifying dependent uses the exemption? 

The dependent’s tax return will have to be amended removing the exemption from the return. The amendment should be mailed to the IRS and you should wait for IRS acknowledgement that the exemption has been removed if you want to file your return electronically. If you can’t wait and if you meet all the criteria for claiming a dependent on your return, then you should mail in your tax return to the IRS for further processing.