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Mr Dewey

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Submitted By mrpopo560
Words 550
Pages 3
Mr. Donald Dewey
4321 Mt. Vernon Road
Dover, DE 19901 Dear Mr. Dewey,
As you have asked me for advice on the matter of Income tax last time we met at the local Chamber of Commerce, included in this letter is the information you requested.

Facts: Don and Mary Dewey are successful professionals who have a combined AGI of approximately $400,000. Their household includes two children: Debra (age 16) and Van
(age 23). Van is not a student but works a part time job where he earns $16000. The father Don wants to know if Van (his son) can claim Debra (his younger sister) as a qualified child for income tax purposes.

Issue: If Van can treat Debra as his qualifying child, he qualifies for a dependency exemption, the child tax credit, and the earned income tax credit. On the other hand, if you and your wife claim Debra, the only benefit available to you is the dependency exemption. The reason being is that your income is too high to permit the use of either the child tax credit or earned income tax credit. Although the dependency exemption yields a greater tax benefit to you than to your son Van, the tax saving is by far outweighed by the unavailability of the two credits. For that reason, the family would save taxes if Van claims Debra as his qualifying child. In such a case, you would have to forgo the dependency exemption for Debra.

Analysis: A qualified taxpayer may claim a person as a qualified child only if he or she has an AGI that is higher than the AGI of the person’s parents. Since Van’s AGI of $16000 is less than both of his parents’combined AGI of $400,000, he cannot claim Debra due to the failure of the AGI test. There will be two different types of tax related consequences on both the parents and the son. If Van claims his younger sister, he will be eligible for the child tax credit according to §24 of the IRS codes related to child tax credit.

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