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I have a client whos has two children in college. The parents

I have a client whos...
I have a client whos has two children in college. The parents still supports them. The kids of unearned income in excess of $1900.....Would there be an issue if the parents did not take the children as dependents, on the childrens returns they took themselves????
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10/11/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Customer:

ok

Megan C :

If the children do not provide over 1/2 of their total support, they cannot avoid the kiddie tax

Megan C :

So, if the children can support themselves there is no kiddie tax. Otherwise, if they are college students under 24 they will be taxed at their parents rate.

Customer:

I understand that, but can they have the dependency exemption and take the credit for tuition....their parents income is too high

Megan C :

Publication 17 states:

Megan C :

Who cannot claim a credit. You cannot take an education credit if any of the following apply.




  1. You are claimed as a dependent on another person's tax return, such as your parent's return.




  2. Your filing status is married filing separately.




  3. You (or your spouse) were a nonresident alien for any part of 2012 and did not elect to be treated as a resident alien for tax purposes.




  4. Your MAGI is one of the following.




    1. American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er).




    2. Lifetime learning credit: $124,000 or more if married filing jointly, or $62,000 or more if single, head of household, or qualifying widow(er).





Megan C :

If the child claims themselves as a dependent, they could get the exemption and the education credit.

Megan C :

Do you have any further questions?

Customer:

Right...so they still have to be taxed at parents rate, but they can take the education credit with no issues.

Megan C :

Yes, but only the parent or the child can claim the education credits. You can read about that, HERE

Megan C :

Is there anything else I can assist you with today?

Customer:

After the I put the dependency exemption for the chid it gave me the full standard deduction and the exemption...that exceeded the income so there is no taxable income thus nothing to tax at the parents rate....correct????

Megan C :

No, the unearned income is still taxed at the parents rate.

Customer:

But it is telling me there is no taxable income to put on the 8815

Megan C :

I don't know how to work around your software.

Megan C :

I would just keep the children as dependents of the parents, since technically they meet the IRS rules for being dependents

Megan C :

But, there's nothing that says a child cannot claim the education credits

Customer:

The child can still claim the credits if they are a dependent of their parents???

Megan C :

No, they cannot, only the parents can if they are listed as a dependent on the parents return

Customer:

Ok...I thought you said there is nothing that says the child cant take the credit, but that is only if they claim themselves.

Megan C :

No, the parents need to claim them if they provide over 1/2 of the total support

Megan C :

Is there anything else I can assist you with today? If not, please rate as "excellent" so that I may receive credit for assisting you today

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Thanks, Deenie for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today .
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
16,592 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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