Dependency/Exemptions

[Pacun]

Terry,

Let's say I get married on Dec 30th, to a 20 years old who made 7K and is a full time student who lived with her parents and has two children whom I have never met, and they lived with their grand parents and grand parents supported my wife and her children 100%. The fact that I have never met those children, doesn't prevent me from claiming on a joint return. On the joint return ONLY one of the spouses has to meet the "living in the same household" in order to get all the goodies. So I could perfectly file jointly and no matter how much noise the grand parents make, I will prevail because my return is filed correctly.

This is my last comment on this because it is getting to long and it is hard to convince other preparers without a consensus so if others want to give their views, I will be reading them and maybe Terry or I can learn something different. BTW, I love this site.

 

[Terry D EA]

Gail, I believe you are correct too. But... the grandparents have the higher AGI, and can claim the dependent child as well which makes the young couple ineligible for the EITC. I tried completing the return with the box checked yes for the question if someone else could claim the child and the ETIC was disallowed. I'm still researching this a bit but if it is true, having the young couple file MFJ doesn't benefit them at all. Regardless, they still get all of their withholdings back. Just none of the credits.

[Gail in Virginia]

Terry, the example in Pub 17 specifically mentions a daughter who lived with and was supported by her parents the entire year, who filed jointly with her husband, cannot be claimed as a dependent by her parents. So I don't think you should check the box on the daughter that she can be claimed as a dependent on someone else's return.  And i don't think that the AGI matters at all.  That used to be used as part of the tiebreaker rules, but I think that as long as the child lived with a parent, the parent gets to claim the child no matter who in the household had the highest income.  This is because the IRS simplified the rules several years ago and created qualifying children and qualifying relatives.

Doesn't this seem simpler to you?  (/s)

Just remember, reality has nothing to do with how tax returns are filed and who can claim who as a dependent.

[Terry D EA]

Thanks Gail and I read the same information. This whole thing boils down to yes the daughter can file MFJ and if she does, then her parents cannot claim her. But, if she files MFS and doesn't take an exemption for herself or her newborn daughter, her parents can claim them both. In my specific case, the daughter is a full time student who did not pay for more than half of her support and did live with her parents all year. If the daughter chooses this way, then the parents can claim her and her newborn daughter. Doing so is costly to the daughter. I have given both scenarios to her parents to discuss. So, if her parents say they do not want to claim them, and the daughter agrees, then MFJ it is. They will claim their newborn, EITC and CTC and will come out ahead. I want to be clear here that this is solely the daughters choice.  

As you suggested, I would not check the box that someone else could claim her simply because if they file MFJ no one can.

Yes, It does seem simpler to me. Her parents normally have to pay a significant amount each year and by claiming their daughter and granddaughter they would get dependency and exemption deductions of $9100.00.

Thanks to everyone with all of the help with this. Just waiting to be told which way to file.