Claiming a child as a dependent

SC&H Group accountants also address deducting sales tax, medical expenses

By Jim Wilhelm, Stuart Rudo and Greg Horning | Special to Baltimoresun.com

February 12, 2006

Baltimoresun.com's tax-advice column features three experts from the Hunt Valley accounting firm SC&H Group answering questions about preparing your return every Monday until April 17. To be included in the following weeks, please use the form at the right side of this page to submit your questions.

Janet Gainey, Baltimore: My husband is collecting retirement from SSA and support for our two minor children from SSA ($386 each). IRS informed us that a portion of my husband's retirement is taxable after filling out the form in the book and that none of the support for our children is taxable. My oldest daughter started working for the first time in 2005.

After researching, I found that my daughter's income does not have to be claimed if she doesn't exceed $4,500, approximately. However, the confusion comes as to whether she is still our deduction, or can she file on her own, and if so, we can't claim her. She still lives under our roof. Since my husband receives a check from SSA for her benefit, wouldn't that compel us to claim her and all her wages?

SC&H Group: Your oldest daughter will be considered a qualifying child for you to claim as a dependent if she meets all of the following conditions:

She is under age 19 at the end of 2005; under age 24 if she is a student; or any age and permanently or totally disabled.

She did not provide over half of her own support for 2005.

She lived with you for more than half of the year.

If she meets the criteria above, you can claim her as a dependent on your tax return.

Your daughter's income is below the filing limit, so she is not required to file her own return. She may, however, wish to file to claim a refund for taxes withheld. She must mark a box on her return that indicates she can be claimed as a dependent on someone else's return.

Karl Whitehurst, Maryland: My daughter is 17 and worked in 2005 part time. She wasn't in school because she quit. She received a W-2. Does she need to file taxes?

SC&H Group: If your daughter's earned income is more than $5,000, she is required to file a federal income tax return. If her income was below the $5,000 threshold, she may wish to file a return to claim a refund of taxes withheld from her pay.

Jackie H., Pasadena: We bought a new motor home this year. I understand that we can deduct the sales tax on our taxes in 2007. How does that work?

SC&H Group: For 2005, taxpayers who choose to itemize deductions can elect to deduct state and local general sales tax in lieu of state and local income taxes. The provision that allows this deduction expires at the end of 2005. No sales tax deduction will be allowed after 2005 unless Congress extends the provision.

Refer to the sales tax tables in the Form 1040 booklet and add any amounts of sales tax paid on motor vehicles, boats and other items. Then, choose the tax deduction producing the larger benefit.

A motor home purchase may qualify as a second residence for you. To qualify, the motor home must have sleeping, cooking and bathroom facilities. If it qualifies as a second residence and you financed the purchase, the interest on the loan is deductible on Schedule A as mortgage interest.

J. Smith, Baltimore: I have not received my 1099 retirement form from Baltimore City. How long do I have to wait [before requesting that the city send it]?

SC&H Group: All Form 1099s are required to be postmarked no later than Jan. 31. If you have not received your 1099, you should call now to follow up with the issuer.

Patrick Flynn, Baltimore: My mother has a number of medical expenses that total over $25,000 for this year. Most of this is for what we pay people to come in and help her with basic needs such as bed, bath, feeding, etc. My mother is bedridden as the result of a stroke and can't do these things for herself. We pay people out of our pocket and do not withhold any taxes. Can we claim this expense without causing any tax problems for us or the people who help my mother?

SC&H Group: Yes, you are permitted to deduct any medical expenses that exceed 7.5 percent of your adjusted gross income, even if they are paid on behalf of a dependent. This deduction is taken on Schedule A of your personal income tax return if you itemize your deductions. You should retain copies of all documentation regarding payment of these services for proof in case of an audit.

[On] your question regarding "tax problems" for the caregivers, the IRS could be alerted to this if you are ever audited and they request proof of your deductions. They would then pursue the caretaker to see if the fees that you paid to them were reported on the caretaker's tax return.