For 2013, my daughter made about $3,000 so there was no issue. I claimed her as dependent. She worked a lot more during 2014, and with some capital gain distribution (mutual fund I contributed for her since she was young), her 2014 income exceeds $6,100, so she has to file federal return if I continue to claim her as dependent, limit is $10,150 if I don’t claim her as dependent.
We did not expect the capital gain amount is as high as it is, and she did not think she would have worked the hours during senior year high school and summer, she left her W-4 as tax “exempt” for 2014, so no income tax was withheld at all.
So I guess the bottom line is should we continue to claim her as dependent? If so, she will have to file her own income tax and ends up with tax owed. I checked the IRS site, no penalty if one does not have a tax liability in 2013.
I am no where near ready to tackle tax return task, but probably should do a quick estimate to see which way has lower tax liability.
Whether you claim her as a dependent is not really a choice. If she meets the criteria of a dependent, she cannot claim the personal exemption herself (even if you don’t claim her). If she does not qualify as a dependent, you can’t claim her as one.
To be claimed as a qualifying child she must meet the following tests:
Age test: be less than 19 or less than 24 & a full time student
relationship test
Residence test: live in the same residence as you for half the year (being away for college counts for this)
Support test: must not have provided more than half her own support
The exemptions for 2014 have changed. Standard deduction is $6200 for a single person. That is the cut off for filing if she has only earned income. However, you mentioned she has unearned income. The cut off is much lower when that is the case. Here is a link that may help: http://www.irs.gov/publications/p929/ar02.html
Depending on the amount of the investment income, part may be taxed at the parent tax rate.
@swimcatsmom, thank you for the link. Her unearned income is not much, but together with earned income, exceeds the $6,200 limit by a tiny bit unfortunately.
If it is a tiny bit over the exemption, her taxes should not be bad. Definitely sounds like she is still a dependent (assuming she meets the other criteria)
Post #1 is correct, it is not a choice. Either she qualifies as your dependent and you claim her exemption or she doesn’t qualify as a dependent and she claims her exemption.
The following is from the line 5 worksheet on the back of the 1040EZ:
So the combination of you choosing not to claim her even though she qualifies as your dependent and her being able to claim her exemption is a non-starter.
I read through Publication 929 about filing requirements and some examples/worksheets which helps a lot. I will claim her as dependent, she files her own return but cannot claim her own exemption.