Margaret CPA in OH Posted March 8, 2016 Report Share Posted March 8, 2016 Another first for me. New client claims adult daughter (56) who is permanently and totally disabled (I think something like ptsd, not physical). Client is surprised that daughter has to file this year but she received $49,000 in gross proceeds (loss with basis), $1769 dividends and $8279 in SS ($2611 now taxable). I've read dependency requirements and it seems that there is no income limitation to claim this daughter. They live together and client pays the bills. I just wonder about the support part and whether it even applies. Client has paid several hundred in medical bills plus has listed gas, cash, and credit card payments for daughter. Something just seems strange but I can't see how this is incorrect per requirements. Is this all good? Quote Link to comment Share on other sites More sharing options...
grandmabee Posted March 8, 2016 Report Share Posted March 8, 2016 isn't there a 4,000. gross income limit Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 8, 2016 Report Share Posted March 8, 2016 The gross income limit applies for qualifying relative - this dependent is qualifying as qualifying child because under age 18, or a full time student under 24, or permanently and totally disabled. 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 8, 2016 Author Report Share Posted March 8, 2016 That was my thought initially but if you look at the sequence of qualifications step-by-step, Step 3 mentions permanently and totally disabled at any age. She is so it says that the taxpayer can claim her as a dependent without proceeding to the income for a qualifying relative. I did prepare a return for her but she owes no taxes due to the loss. 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 9, 2016 Report Share Posted March 9, 2016 2 hours ago, Margaret CPA in OH said: Another first for me. New client claims adult daughter (56) who is permanently and totally disabled (I think something like ptsd, not physical). Client is surprised that daughter has to file this year but she received $49,000 in gross proceeds (loss with basis), $1769 dividends and $8279 in SS ($2611 now taxable). I've read dependency requirements and it seems that there is no income limitation to claim this daughter. They live together and client pays the bills. I just wonder about the support part and whether it even applies. Client has paid several hundred in medical bills plus has listed gas, cash, and credit card payments for daughter. Something just seems strange but I can't see how this is incorrect per requirements. Is this all good? Which one is 56, the client or the adult daughter? I don't think the mother can claim this adult child as a dependent because of the gross income limitation, and yes, you do need to consider support also. Gross income does apply if over 18 and not a student. Only certain income can be excluded, not all income just because of disability. The exclusion from income is for income paid for services performed at a sheltered workshop. The adult child has more than $4000 in gross income in your example. Also, the TP must meet the support test by providing more than 1/2 this adult child's support, and knowing that this adult child had this $49K of proceeds, you need to complete a support worksheet for the year and for future years too to determine which one of them provided more than 1/2 of the child's support. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 9, 2016 Report Share Posted March 9, 2016 6 hours ago, Margaret CPA in OH said: Step 3 mentions permanently and totally disabled at any age. Ok, I missed this part of the requirement to be a qualifying child , and if she meets the other requirements to be a QC, then gross income doesn't come into play. However, the qualifying child rules include a support test. I still think you should go through those calculations to be sure. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 9, 2016 Author Report Share Posted March 9, 2016 Judy, the mother is 77, the daughter is 56. I just know I will get major push back about this support issue but on paper mother has gross income of $35,000 vs daughter's gross income of $59,000. It's likely that no money was withdrawn, however. And there was some mention of selling something from late husband. Ugh! The former preparer retired and 'always did it that way.' The former preparer also claimed EIC for the mother last year and erred by omitting $1956 in the FWT so we will amend. There have been no recent tax returns done for the daughter so it is possible that her gross income, at least recently, was below the filing requirement. For 2015, whether or not she is claimed as a dependent there is no tax due. Mom, however, loses about $600 federal and state. I will ask for daughter's 2014 documents as mom's already needs amending and will see what we get. Unfortunately they are both very nice folks but very skittish and, of course, offer that they depend on preparers and don't know about all this stuff. Sigh... Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 9, 2016 Report Share Posted March 9, 2016 Just fill out the support statement with them to determine if daughter paid for more than half her own support and keep it in your records. I'd start with ballpark figures from their memory plus documents they can get quickly. If it's not overwhelmingly in one direction or the other, then get more detailed expenses and backup. Keep document in your files. And, tell them what to give you next year, since this is an annual determination. One year with the daughter supporting herself doesn't mean she always supports herself. Even with a windfall, she might save it and not spend it. 4 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 9, 2016 Author Report Share Posted March 9, 2016 Hmm, a support statement - I see something like that in QF, costs of keeping up a home for the year. But the daughter will have paid for none of this per mom's list. Mom also pays daughter's credit card, gas, medical. So she will be more than 50% but not because the couldn't pay it. I do wonder what the daughter does with her income. I've never had clients faced with this sort of thing. Mom did provide a list of all she paid for her daughter, several hundred dollars, and it's likely that little or none of the daughter's sale proceeds were taken from the investments. I think I have to explain that the daughter had the resources and could have paid for her own support but chose not to do so. It may be indelicate to ask the approximate value of her assets. I'm wondering if it is a conscious choice to live off of mom but don't know enough of the details. This experience doesn't thrill me. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 9, 2016 Report Share Posted March 9, 2016 The mother may be putting everything the daughter gets in some type of savings arrangement to take care of her when the mother is gone and no longer can take care of her child. And money put into savings does not count towards support. I agree that you need to be comfortable that mom is providing OVER 50% of the support but otherwise I don't think that the income is relevant in this particular case. 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 9, 2016 Author Report Share Posted March 9, 2016 Thanks, Gail. The strange thing is that the daughter is sort of taking care of mom now, managing paperwork, driving her around, etc. It is possible, though, that daughter's assets are being conserved to support her after mom's passing, assuming that is the order. I hate to have to ask some of these questions but, as I explained to mom the other day, they are totally new clients to me so I have to ask a lot of questions to truly understand their tax situation and do the best job for them. 3 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 9, 2016 Report Share Posted March 9, 2016 2 hours ago, Margaret CPA in OH said: support statement Margaret, if you don't have one, use worksheet 2 from pub 501, page 16 here (safe link from irs): https://www.irs.gov/pub/irs-pdf/p501.pdf I agree with starting the questions in a general way to see if the support provided by one or the other is at all close to the 50% and go from there. Does the daughter have her own car? If so, who paid for that and when? It's possible that it's as Gail says, possibly the bulk of the daughter's assets are being saved for the future, or maybe not at all. There is no way to know this without asking for the details, and with the daughter having significant cash flow in 2015 that exceeds the mom's, the prudent course of action is to ask. Don't be uncomfortable with this. Explain that It is because they are relying on you for a complete and accurate return that you must do this, and that it should be considered each year because each year stands on its own set of facts, no matter what the previous preparer did. Explain that it is especially important to consider this because of the level of each of their cash flow in 2015 compared to each other. 4 Quote Link to comment Share on other sites More sharing options...
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