Ways to snag big tax savings with dependency deductions


The new tax law (OBRA) makes several significant changes. Yet,it's still true that big tax savings come from techniques that have been around for years.

Look at how the new law and the current law affect the big dependency deductions, for example. This will be worth your time, no matter what your tax bracket, says tax attorney Eli J. Warach, editor of Maxwell Macmillan's 1991 Federal Tax


Keep in mind that when someone is eligible to be claimed as your dependent, that person cannot claim a dependency deduction for himself or herself. This has not been changed by the new 1990 law. Start with the ground rules:

* In order to claim someone as a dependent, generally that person's gross income must be less than the exemption amount, $2,050 in 1990. We don't yet have the 1991 figure.

* You must supply more than half that person's support.

* The dependent generally must be a relative or a member of the taxpayer's household.

There are exceptions, for example, a multiple support arrangement. Under certain circumstances, no one member of a family has to supply more than 50 percent of the support in order to nail down a dependency deduction.

Students: A child or stepchild who is a student under 24 years old actually can earn more than the $2,050 normal cut-off point and still qualify as your dependent. You still must supply over half of the child's support.

Here are more ways to nail down a year-end dependency:

You provide support to a relative -- it could be a niece, grandchild, your married child or a parent. The general rule is that you can claim a dependency deduction for a relative only if you provide more than half of his or her support. And, of course, unless it's your child (under 19 or an under 24 student), the dependent cannot have gross income in excess of $2,050 in 1990. If you are near this halfway support mark, you may figure it is worth your while to add a few dollars more to what you have already provided this year.

Yet, it may not be necessary. Take a few minutes now to jot down support you contribute. While a lot of this may be getting paid to someone other than the person you want to claim as a dependent, it may be spent on that dependent's support. There's a good chance these overlooked items will push you over the halfway mark. You may get a dependency deduction without laying out one extra penny. These often are expenses you were going to incur anyway.

To help out, here's a checklist of some items that may count as support: home insurance; personal or property insurance; the cost of a maid or housekeeper; telephone; utility bills; child's allowance; automobiles; baby-sitter payments; charitable contributions; music and dance lessons; television sets; the cost of boarding school; child care payments; school supplies; medical insurance; student loan payments; lump-sum payments to a rest home; mortgage and property taxes; toys and bicycle repairs; the cost of entertainment; vacations; summer camp; swimming pool fees; book clubs; wedding apparel and accessories; haircuts and permanents; vitamins; laundry and dry cleaning fees; long-distance trips to care for a relative; medical and dental.

The other side of the coin: You help your mother pay some of her monthly bills. You thought you would come nowhere near the half-support mark for the year, but after reading this checklist and taking time to figure things out, you find you'll be just a little short at the end of the year. By adding a few extra dollars between now and then -- to get you over the halfway point -- you can get an extra dependency deduction.

If your adjusted gross income (AGI) is under $150,000 (for joint returns), you don't have to worry about the phase-out of deductions for personal exemptions, effective for taxable years beginning after 1990. Generally, AGI is gross income less any adjustments. Under the current law (passed in 1986), the loss of any personal exemptions is geared to taxable income. Under the new law, the test will be AGI.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad