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How long can a child be claimed as a dependent?
Q. My child graduated from college last year but is living at home. Can I claim her as a dependent on our tax return?
A. That depends. For college-age children, three of the key factors the IRS looks at are age, income and student status.
Generally children under 19 qualify as dependents regardless of income or school enrollment. Those 19 to 23 qualify regardless of income if they were full-time students at least five months of the year. Children who don't fit in either category qualify only if their gross income was less than $2,900.
If your daughter passes one of those hurdles, the key question becomes who paid her expenses. You can claim her if you contributed more than half of her support, or if you are divorced, you and her other parent together contributed more than half of her support. Relatives need not live with you to qualify as dependents, but if they file a joint return with a spouse, you usually cannot claim them.
If your daughter is a borderline case, take a close look at both of your tax situations. Depending on your circumstances, the tax savings might be greater if the child claims financial independence.
Q. About six years ago, we invested $50,000 in an annuity that paid $350 a month. Last year when the market kept going down, I called the insurance company and told them to send me whatever the balance was. I received a check for $30,288, giving us a loss of $19,712. The IRS told me I could claim this loss on Schedule D at the rate of $3,000 a year, but the insurance company said I cannot claim a loss on an annuity. Is this true?
A. You can take a loss on an annuity. Tax expert Ed Slott, an accountant in Rockville Centre, N.Y., says the size of your loss depends on the tax treatment of the monthly payments you received. If you paid taxes on the entire $350 a month, you can claim the entire $19,712 as a capital loss, which can be used to offset capital gains or deducted against other income at the rate of $3,000 a year. If some of the $350 a month was not taxable, representing a return of principal, your loss would be reduced by that amount.
Q. Would you please explain the rules about giving a gift of $10,000? Can this gift be given to anyone or just to your children? What does it mean that tax-free is not the same as tax-deductible?
A. The magic number for annual gift giving is now $11,000. That's how much you can give any one person in a calendar year without gift tax ramifications. The person need not be related. You and your spouse together can give $22,000, or a total of $44,000 to your child and the child's spouse.
Gifts in excess of the limit will reduce the amount of your estate tax exemption at your death, but in most instances will not require payment of any tax.
Each $11,000 gift is tax-free, meaning that neither the giver nor the recipient is taxed on the gift. Since gifts to individuals do not qualify as charitable deductions, they are not deductible on your income tax return.
Q. Last year, I invested in El Paso Energy Partners, which pays dividends quarterly like several other stocks that I own. When I received the 1099 from my broker, the El Paso dividends were not included. I was told I would receive a K-1 directly from the partnership by April 15. How can I fill out my income tax when I don't have some of the information required until the last day? Could I just report it and pay the full tax on it? I have seen a K-1 form and it is very complex and would require me to hire an accountant, which I otherwise don't need.
A. Tax complications are one of the disadvantages of investing in limited partnerships. If you don't have your K-1 or other information you need to file on time, the correct procedure is to file a Form 4868 requesting an automatic four-month extension and mail it in along with any tax you think you owe.
Along with your K-1, you should receive a copy of the instructions for reporting your share of the partnership's income. If you are not able to figure it out, get help from someone who understands K-1s. If you learn how to handle it this year, you should be able to figure it out yourself next year.
-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
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