Dependency Question

I have almost 30 years in this business and am an EA, but for the life of me I cannot find a definitive answer to this, so I'm hoping you good people can help.

Child is 26 years old and a full time student. Child also has a small computer business - builds custom computers and does network maintenance. Child clearly has gross income over $5K annually.

Parent is claiming child as dependent on their tax return under the premise they can because child is a full time student.

However, under the new rules I'm not so sure that this OK anymore.

Pub 501 says Under 24 and a full time student - to be a qualifying child. Since this child is 26 does that mean they don't qualify as a child?

If they don't qualify as a child, it seems we can look to the qualifying relative test. The problem here is that the child's gross income exceeds the limitation for this test.

dependent

asked 08 Jan '10, 18:05

EAgent
5.2k●2●13
accept rate: 6%

4 Answers:

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2	You are correct that the the dependent can not be claimed. link answered 08 Jan '10, 20:41 Brent Berkman 3.1k●3●12 accept rate: 13%

What is his income after COGS? If still over $3650, he cannot be a dependent. Gross income defined. Gross income is all income in the form of money, property, and services that is not exempt from tax.

Pub 501 says - In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business.

Depending on his COGS, that will answer the question.

Helen, EA in PA

link

answered 09 Jan '10, 00:52

Helen EA in PA
1.8k●2●4
accept rate: 4%

1	At age 26, being a full time student no longer matters. If the child is permanently and totally disabled, then the child can be claimed as a qualifying child. Otherwise, the child cannot be claimed as a dependent. link answered 23 Jan '10, 05:54 stephenweins... 1.5k●2●15 accept rate: 1%

Hello EAgent,

I would concur with Helen EA in PA...

Her son does not meet the QC tests because of age at the end of the taxyear; however, the QR test can be met by reviewing the COGS on Schedule C in addition to all other tests.

Curious to know what your ultimate determination was, based on all of the other factors.

link

answered 19 Jan '11, 04:51

Kristy M. W.
983●9
accept rate: 4%

I fell in line with Helen - he does NOT qualify as a dependent. INTERESTINGLY - it cost me the client, which is OK. Funny how folks want what they want whether its right or not.

(19 Jan '11, 19:09) EAgent

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