Many teenagers and young adults continue to rely on mom and dad after they get their first job. Even later in life, they may have to fall back on their parents. Usually when a parent provides most of a child's support, even if the child works, the parent can claim the child as a dependent, regardless of the child's age. When the child files his income tax return, he will not be able to claim his own exemption and may have a reduced standard deduction. But he can still claim many other deductions.
A child filing as a dependent usually cannot take the full standard deduction and must claim a reduced amount instead. The amount of the reduced standard deduction is based on the child's earned income, which for this purpose is the total of salaries, wages, tips, self-employment income and the portion of scholarships used for living expenses, plus $300. The minimum deduction is $950, and the maximum deduction is the regular standard amount, which was $5,800 in 2012 for a single person. If a dependent is blind, he can add $1,450 ($1,150 if married) to his deduction in each case.
Most children who rely on their parents will not have enough expenses to itemize deductions on Schedule A. But in certain cases it makes sense for a dependent to itemize deductions, such as when the child has a large amount of employee expenses related to his job, or when the child has a large amount of unearned income such as interest and dividends. The child's itemized deductions will have to exceed his standard deduction in order to claim any benefit from Schedule A.
Dependents can take a deduction for any contributions to a traditional IRA. There is no minimum age limits for IRA contributions. As long as the child has income from wages, salaries, tips or self-employment, the child can contribute to an IRA. This deduction will be of most benefit to dependents with relatively high incomes who will owe income taxes.
If your child moves in order to take a new job, he may be able to take a deduction for moving expenses. To qualify for the deduction, the new job must have required at least 50 more travel miles than his old job required if he had not moved. If it was his first job, the job must have been at least 50 miles from his original home.
Dependents are not allowed to take the tuition and fees deduction or the student loan interest deduction, even if they paid the amounts from their own money. Parents can take the tuition and fees deduction only if they paid the amount themselves. Parents cannot take a deduction for interest they paid on a student loan unless they cosigned the loan and can be held responsible for repayment. In addition, a student cannot claim the American Opportunity credit or the lifetime learning credit. But a parent can claim these credits for a dependent regardless of who actually paid the costs.
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