Valentine’s Day is all about that special someone in your life, but have you ever wondered if your date across the dinner table might actually be able to save you money on your tax return or if the two of you now decide to get married, whether you can deduct any portion of the wedding and thereafter pay less in taxes?
What you need to know about who qualifies as a dependent.
Dependents, which can range from a girlfriend to a child or even a friend, are often an area where tax deductions are either missed or misstated on tax returns. To help taxpayers navigate this gray area, here are the tests necessary to claim someone as your dependent—and some of the tax benefits available for claiming the one you love:
First and foremost, whether they are your child or your Valentine:
• You cannot claim them if you can be claimed as a dependent by another person.
• They cannot file a joint tax return (in most cases).
• They must be a U.S. citizen, resident alien, national, or a resident of Canada or Mexico.
In order to claim a child as a dependent, these five additional tests must be met:
• Relationship: Must be your child, adopted child, foster-child, brother or sister, or a descendant of one of these (grandchild or nephew).
• Residence: Must have the same residence for more than half the year.
• Age: Must be under age 19 or under 24 and a full-time student for at least 5 months. Can be any age if they are totally and permanently disabled.
• Support: Must not have provided more than half of their own support during the year.
• Joint support: The child cannot file a joint return for the year.
These four tests determine where a relative or sweetheart qualifies as a dependent:
• They are not the “qualifying child” of another taxpayer or your “qualifying child.”
• Dependent earns less than $4,000 taxable income in Tax Year 2015 and $3,950 in Tax Year 2014.
• You provide more than half of the total support for the year.
• The person must live with you all year as a member of your household or be one of the relatives who doesn’t have to live with you.
You can even claim a boyfriend, girlfriend, domestic partner, or friend as a qualifying relative if:
• They are a member of your household the entire year.
• The relationship between you and the dependent does not violate the law, meaning you can’t still be married to someone else. Also check your individual state law, since some states do not allow you to claim a boyfriend or girlfriend as a dependent even if your relationship doesn’t violate the law.
• You meet the other criteria for “qualifying relatives” (gross income and support).
Once you’ve determined who in your life can be claimed as a dependent, be sure to take advantage of the following tax deductions and credits:
• Dependent exemption: Have you been supporting your boyfriend or girlfriend? If he or she meets the above tests, this may entitle you to a deduction of $3,950.
• Dependent care credit: Allows you to claim up to $6,000 of your eligible dependent care costs for two or more dependents.
• Child tax credit: Depending on your income, you can claim up to $1,000 per qualifying child—helping to reduce your federal taxes.
What you need to know on deducting gifts to your staff.
If you own or run a business, you know how important it is to keep your staff feeling appreciated. Sometimes you will want to reward your staff members after a particularly big project or demanding event. Other times that you may want to give gifts to staff include holiday gatherings, birthdays, wedding and birth announcements and after a staff member loses a loved one. The IRS understands that businesses routinely give small gifts to employees and has established rules governing the deductibility of those gifts.
General Rules Regarding Gifts. The IRS allows businesses to make gifts to other businesses or individuals for the purposes of developing goodwill and a favorable business environment. There are two broad categories of gifts — tangible gift items and entertainment. The IRS allows businesses to deduct gifts of up to $25 in value per recipient. If you make a gift to a client’s or employee’s wife, the IRS considers that to be a gift to the client or employee. If the gift is an entertainment expense, the IRS allows you to deduct half of the expense, as long as the expense is not exceedingly lavish or unreasonable.
De Minimis Fringe Benefits. The IRS also recognizes that employers frequently provide gifts or insignificant fringe benefits to their employees that cannot be reasonably tracked and expensed. Generally, if a business provides complimentary bagels to employees on an infrequent basis, or sends flowers to a staff member mourning the loss of a loved one or celebrating a new birth, this expense is deductible to the company but not taxable to the employee. Generally, if the gift is less than $100 in value, and is given infrequently by the company, or only on special occasions, there is no requirement to report this item as income.
Awards and Prizes. The IRS considers cash awards and prizes of any amount to be compensation and are, therefore, deductible to the employer. Awards and prizes are taxable to the employee, however; and as a business owner, you must track the award and report it on the employee’s W-2 form. However, if the award is for longevity, safety or similar awards, you may only deduct $400 for awards not part of a qualified plan that does not discriminate against highly compensated employees, or $1,600 for all awards.
Reporting Gifts. For gifts of nominal value that you give to employees to promote goodwill, you can generally deduct the expense on your business tax return or on your Schedule C as a nonwage business expense. Deductible expenses include most meals you provide to employees and up to $2,000 in life insurance.
In part 2 of this blog I discuss how you may get a Tax Write-Off for your wedding, is an engagement ring tax deductible and is there a Marriage Tax Penalty?
It’s Risky Business To Claim Your Sweetheart on Your Tax Return or Deduct Gifts To Your Sweetheart or Take A Tax Write-Off For Your Wedding.
Writing off wedding costs reduces your tax liability for the year in question and may increase your tax refund but consider whether you are willing to endure an audit for your attempted deductions. Quirky write-offs are red flags for the IRS. So if you are writing off your honeymoon as a business trip, keep a log of activities like appointments and what business was transacted. A paper trail of receipts will back up your case. It costs a lot to support our children and sometimes even our friends who have been living on the couch for the past year but taking advantage of these tax tips may provide you with some relief and well-deserved tax savings this Valentine’s Day.
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.
Original Post By: Jeffrey Kahn
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