"Being claimed" on my mothers taxes and mine done by her accountant
I have been dancing on and off for a few months now, but I am getting nervous about a few things...
I am only 19, and because of my parents divorce, my mother claims me on her taxes. I know that for this they do not need to know my occupation, but her accountant also does my taxes out of sheer convienence. My mother is not the type of person who would be okay with me bringing them anywhere else, but I can not let her know how much I make or where I work.
How do I go about this? I really want to dance full time and more consistantly, but how do I hide it? Should I get my own apartment (a plan in the near future anyway) and have all my tax information sent there so I can do it on my own? Any advice would help!
Re:"Being claimed" on my mothers taxes and mine done by her accountant
The tax laws are mutually exclusive - if you are someone else's dependent, then that other person must claim your income as well as their own and pay taxes due on the entire amount. If you are someone else's dependent, and you don't report your income, and for some reason the IRS finds out about that income, then both you and the other person can be charged with tax evasion.
On the other hand, if you file your own tax return, any problems which might arise are yours and yours alone. However, if you file your own tax return, then nobody else can claim you as their dependent. For the other person who had previously claimed you as a dependent, this results in that person having fewer exemptions and deductions and having to pay a higher effective tax rate - or an even HIGHER tax rate if the loss of the deduction results in a change in status from "head of household" to "single".
It's pretty reasonable to assume that if you were your mother's only dependent, if you start filing your own taxes she'll lose her "head of household" tax status. If your mother has a reasonable income from a straight job, losing you as a dependent may cost her $6-$8-$10,000 in additional income taxes.
You could also accurately report your own income while still remaining a dependent on your mother's tax return. However, this would prevent you from claiming any deductions for yourself, and could very well result in you having to pay out 50% of your dancing income for federal, state, and self-employment taxes. At the same time, adding your income to your mother's income by remaining as her dependent may kick you both into a higher tax bracket, costing your mother a higher percentage in taxes as well (maybe an extra $2-$3,000). Also, there's no way that you could hide your reported income from your mother if you remain her dependent, since this info must be included with your mother's tax return.
You could, of course, choose not to report your dancing income to anybody. However the risk here is that, if your club were ever investigated for any reason, club records of employment applications, dancer schedules, club records of private dance/champagne room/funny money payouts etc. could result in the IRS coming down on both you and your mother ! Or your club could simply decide to issue a 1099 form next February reporting all of your income for the past year to the IRS in order for the club to take a tax deduction on their own tax return, at which point you will be forced to report that income on a tax return and pay appropriate taxes or face tax evasion charges.
If you are considering dancing more or less full time, with a resulting $50,000-$100,000 gross annual income, this is NOT something which you can hide without taking an awful lot of risk. If you do so while remaining your mother's dependent, you will also be subjecting her to a lot of risk !
Re:"Being claimed" on my mothers taxes and mine done by her accountant
Remember that Melonie's numerical examples are ALL dependent on your mother abd your income.
Also remember that the clock is running on your 2004 taxes. You are going to have to pay 2nd quarter estimated taxes soon.
You need to talk to your accountant soon. Do not wait until the end of the year and spring on your mom that you are no longer a dependent. If you do not only is she going to have to pay higher taxes, but they are also going to be higher than she expected. Unless your mom tells you absolutely everything about her taxes(and you do not want to have "the talk" with her), the only person with all the information is your accountant. Talk to them ASAP.
Re:"Being claimed" on my mothers taxes and mine done by her accountant
Thanks for all the info... unfortunately, I HAVE to be claimed as a dependent until I'm 21, it's court-ordered in my parents divorce agreement. Could I get away with saying I'm a coctail waitress? I've put dancing on the back burner for right now, seeing as these are all things that I need to work out.
Re:"Being claimed" on my mothers taxes and mine done by her accountant
As posted above, you can work as a cocktail waitress or as a dancer or as a brain surgeon, but if you file as your mother's dependent both her taxes and your own taxes are going to go up in proportion to the amount of money that you BOTH earn (but you'll take a worse tax beating than she will).
Also, I'm 99.9% sure that if it is stipulated in your mother's property settlement and divorce documents that she is entitled to claim you as a dependent, this family court document does NOT supercede federal tax law. This means that if you don't want to be your mother's dependent any longer to avoid paying up the butt on your own income taxes, and if you are over the age of 18, and if you have your own source of income which the law requires you to report to the IRS, you don't have to remain her dependent ! The family court ruling served to assign a "child's" dependent deduction to one parent or the other, but you needn't be a "child" anymore if you don't want to be. If you are no longer a "child", then there is no "child's" tax deduction for the family court to divvy up between your mother and your father any longer. If your mother is telling you that you MUST file as her dependent, I would wager that this is motivated by her desire to keep her own income taxes down by maintaining "head of household" tax status (and at the same time sticking you up the butt with higher tax rates on your own income with no exemptions or exclusions to offset the tax).
Monty is also correct that this decision can't wait until next year. As a cocktail waitress or as a dancer, you are required to make an estimated tax payment this coming June 15th, and again in September and again in December. In order to make those payments correctly, you and your accountant must know within the next 2 weeks what your tax filing status will be from now on.
IMHO the point has come where you, your mother, and your accountant must sit down in a frank discussion in regard to the tax consequences for both you and your mother. It may actually be financially advantageous to both you and your mother for you to agree to hand your mother say $3,000 under the table to make up for her change in tax status, and then file your own income taxes.
Of course, this choice may also have family court overtones in terms of any child support which your father pays to your mother, such that you giving up your "child" tax status may cause his child support payments to your mother to stop. In that case, your mother should kick back to you for agreeing to remain her dependent and you having to pay higher income taxes to avoid rocking her boat so to speak.
This also creates a huge new risk factor. If your father, for example, were to somehow discover that you were working as a cocktail waitress or as a dancer, he could go back to family court and petition to stop making child support payments to your mother. At that point, the fact that you were working as a cocktail waitress or as a dancer would become part of the public court record, virtually assuring that the IRS would also be informed. This pretty much guarantees that if you haven't reported this income that you (and your mother, if you are still considered to be her dependent) will get slammed by the IRS on top of losing your father's child support payments.
Re:"Being claimed" on my mothers taxes and mine done by her accountant
Melonie is absolutely right. A divorce court can not make YOU do anything--you were not a party to the suit. They could say your mom has the right to claim you as a dependent over your father who may be paying child support or something. They could put conditions contingent on your filing status which might affect what your mom gets. But they cannot tell you you can only earn so much income.
Your income determines your status. Provide more than half of your support from a source other than your mom and she can not claim you. I had a college scholarship and summer and school-time income that exceeded my parents support so I was not claimable my senior year. If you legally won a lottery for $2 million the law cannot make you give back the money so you provide over half your support. If you joined the army, the divorce court can't make you turn down your pay and live at home.
I still think you need to talk to the accountant ASAP.
Re:"Being claimed" on my mothers taxes and mine done by her accountant
I have a similar problem. My MIL is an accountant and she does our taxes through H&R block for free. LOL, my husband is already the black sheep of the family and I am worlds different than my nice, proper, Martha Stewart, god-fearing sisters-in-law. In short, it would be really bad for her to know about my dancing (when I start). I'm actually trying to start my own business, so I thought maybe I could just combine the two incomes. My husband said we should just use the cash from work to live off of and pay bills from his income as usual - in short, not claim it. I know the gov't makes too much on taxes as it is, but I'm a nice girl :D I don't think I can not claim it. I don't expect to be making very much, but still. And his mom is so nice in always using all the special rules and stuff to get us as much money as possible that I would feel awful in lying to her... Any suggestions?
Re:"Being claimed" on my mothers taxes and mine done by her accountant
Smittenkitten,
You and hubby are mature enough to be married and on your own--YOU should be doing your own taxes. I don't care that MIL is nice enough to do them for free (a $60-100 value). You guys need to stand on your own two feet or the string back to mommie will be there for years and years and years. It is too easy for MIL doing you a favor to turn into MIL attempting to control--"You guys should save more", " You don't make enough" etc- little things that can spoil your relationships.
Since you have the plans to establish a small business anyway. It is the perfect time to make the break. Your taxes are going to be more complex and take more time and involve remitting sales taxes etc. You have the perfect excuse of "not wanting to impose on her time".
You have a good roadmap to all the things MIL claimed which you call "special rules" (there really aren't any--just things a casual person would not have thought of rushing to do them in 45 minutes). That would be your 2003 return.
Take the time, do the work, grow up. and take personal responsibility! The odds are 1 in 3 MIL will be glad to not have to babysit hubby and you anymore. An accountant/preparer in February to April is minute for minute giving up money on doing other work (or rest) by doing your taxes. Get a start now by learning all the sections related to your 2003 return. You and hubby can do it together on a rainy day. GET Publication 17 at IRS.gov. You can downlaod the PDF and print relavant pages or order it by phone from the IRS. It is 99% the same thing as the book stores sell for $10.
Re:"Being claimed" on my mothers taxes and mine done by her accountant
I guess I agree and disagree. The mommy strings, yeah, in a way. As far as her being happy to not babysit us, she's kind of a weirdo. She tells us all the time that 'helping is her spritual gift' (oh yes, that's a direct quote.) She does all the family's taxes. She insists on cleaning everyone's house and doing laundry and cooking and giving all the mommies a break when she's in town. Really nice, but weird and a little imtimidating. Of course, we should do our own taxes, but I really feel like that would offend her. On the other hand, it would be nice to not have your MIL knowing all the specs on your financial life.
Re: "Being claimed" on my mothers taxes and mine done by her accountant
Quote:
Originally Posted by Melonie
The tax laws are mutually exclusive - if you are someone else's dependent, then that other person must claim your income as well as their own and pay taxes due on the entire amount. If you are someone else's dependent, and you don't report your income, and for some reason the IRS finds out about that income, then both you and the other person can be charged with tax evasion.
Sorry that is incorrect. The income of a dependent is reported on the dependents own tax return and the tax liability for the dependent is calculated based on that return. Many filers choose to report a minor dependent's income on their own tax return for simplicity's sake. The IRS chooses not to contest those returns simply put because the filing individual's marginal tax rate is usually higher than the marginal tax rate of the minor dependnent. Tax law does allow the IRS to go after the assets of any individual who claims a minor dependent on thier tax return for any unpaid tax liabilty of the minor dependent.
The exception of the above is the "Kiddie Tax" which applies to excess investment income of a minor dependent under the age of 14. For a minor dependent under the age of 14 any investment income in excess of the earned income of the minor must be reported on the return of the person claiming the minor dependnet and taxed at that filers marginal tax rate.
Quote:
Originally Posted by Melonie
On the other hand, if you file your own tax return, any problems which might arise are yours and yours alone. However, if you file your own tax return, then nobody else can claim you as their dependent. For the other person who had previously claimed you as a dependent, this results in that person having fewer exemptions and deductions and having to pay a higher effective tax rate - or an even HIGHER tax rate if the loss of the deduction results in a change in status from "head of household" to "single".
If you are over the age of 18 and make more than the minimum earnings threshold ($3,100 for 2004) then no other person than your spouse (if you are married filing jointly) may claim you as a dependent, unless you are between the ages of 19 and 24 and enrolled as a full time student at an accredited institution of education for at least 6 months in the current year. If you are a full time student at an accredited institution of education for at least 6 months of the year, are between the ages of 19 and 24, and your mother and father provide at least 50% of your living expenses, then your mother may claim you as a dependent. Either way you must still file a tax return showing your full earning for the year. If your mother is allowed to claim you as a dependent on her tax return then you may not claim yourself on your own return.
Quote:
Originally Posted by Melonie
<Et al. deleted>
I think your main question is, "How do I keep my mother's accountant from telling her what I do?" If your mother's accountant is a Certified Public Accountant (CPA) then she is bound by the standards of her State Board of Accountancy and the American Institute of Certified Public Accountants (AICPA). The AICPA has an ethical standard of confidentiality that prohibts CPAs from disclosing a clients financial information, unless they have been given written permission by the client or the information is requested under a supeona. If a CPA violates the standard of confidentiality you have to options. 1) File a complaint with the State Board of Accountancy which will result in a disciplinary hearing that may result in anything from censure to revocation of the CPA's license. 2) Suing the CPA in civil court for monetary damages. Note non-CPA tax prepares are not bound to the same ethical standards.
My suggestion is, find out if the tax preparer is a CPA and ask her not to discuss your situation with your mother, also provide her with an alternate address to send the return to or pick it up at her office.
Re: "Being claimed" on my mothers taxes and mine done by her accountant
I think the REAL Problem here is that Mommy can only GET the child support IF Mommy is supporting daughter (ergo claiming her as a dependant). If Mommy loses the deduction ...Mommy loses the Child support checks and Then mommy is gonna be PISSED whether daughter is a Rocket (or Christian) Scientist or a Stripper. I say Don't ask ...Don't tell until you're 21.
Re: "Being claimed" on my mothers taxes and mine done by her accountant
My situation was once the same as described by Jon_CPA. The difference is that I lived away from home. I had a part-time job(s), one of which was stripping, but my parents still reported me as dependant because they sent me enough money every month....
Get a PO Box from Mailboxes, etc, and have your W-2, 1099, or whatever tax info the club sends you sent there. You can probably do your own taxes then or find a different accountant. I know this post is old, but I'm sure it still pertains to many of you.
I would NOT risk going to the same accountant, that is just me. I successfully hid stripping from my parents for 6 years, and I was staying with them some of the time.
Plausible deniability.....