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Thread: Dependent and Tax Returns

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    Senior Member SexedUpCat's Avatar
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    Default Dependent and Tax Returns

    I've done a lot of looking here and on Google, but I'm still confused about an issue.

    I'm a new dancer, and I plan on paying taxes on all of my income. Currently, my parents cover over 50% of my living expenses, though I expect that to change within a year. I'm also 20 years old and still a dependent (would ask for emancipation now except I don't have the money yet to be on my own). Student loans also aren't a concern here. My parents cover them for now, and I will be able to afford them when I take over. My parents think I work at a bar.

    I'm trying to keep my dancing hidden from them (will only tell if absolutely necessary), but I read on here that that can cause serious legal problems for my parents when it comes to tax returns due to me filing my taxes on my own. Yet, I read online that dependents file their own returns once they make more than I think it was $6,800 after deductions. So, I guess my question is how exactly would my parents be getting affected on their returns considering they cover almost all living so I'm definitely dependent no matter my income? Do they need the amount I'm filing in order to do returns? Can I avoid the IRS problems and still keep dancing secret?

    I hope that made sense. Thank you so much for any and all help, and, if there's already a thread like this, I'd love if I could be pointed to it because I missed it, then!

    edit: While with my parents, my income won't be going to my support. It'll only be going to occasional work expenses and sitting in the bank. This is also my only source of income.
    Last edited by SexedUpCat; 07-22-2014 at 12:19 AM.

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    Banned Melonie's Avatar
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    Default Re: Dependent and Tax Returns

    ^^^ the gist of the problem is that FAFSA requires reporting of 'total household income' i.e. your parents' income PLUS your own income. Thus when it comes time for your parents to fill out the next FAFSA application, they must know how much income you are earning. If your parents enter a low 'total household income' figure because they weren't made aware of your own income, technically this could be construed as fraud. Thus you must tell your parents how much money you are earning but additional details ( such as exactly how this money is being earned ) are not required !!! The IRS, FAFSA and your college Bursar's Office all share financial info, so this WILL be cross-checked. Also, under FAFSA rules, any college student child under age 24 is considered to ( still ) be a dependent of the parents short of an emancipation ruling by a judge, but that's not binding on the IRS.

    On the IRS side, college student or not, the IRS criteria for dependent status for tax deduction / exemption purposes boils down to a 51% support test. This is mostly based on relative incomes of the parents vs the student. The fact that your parents actually sign your tuition check, while you deposit your dancing earnings in the bank, is a mostly irrelevant technicality. Bottom line is that the IRS won't allow both the parents and the student to claim the same dependent deduction / exemption. The IRS is likely to take the view that if the parents earn $100k+, the student earns $25k, the student's tuition and other costs are $25k ( all guesswork, obviously ), that the parents are providing the majority of support and are thus eligible to claim the dependent deduction / exclusion. The IRS would probably take a different view if the parents' income and the student's income were both $50k, though.

    The flip side of this is that the dependent deduction / exclusion is typically worth $3-5,000 in terms of net tax bill. Thus claiming your dependent deduction / exclusion will decrease your parents' tax bill by $3-5k, while INCREASING your own tax bill by the same $3-5k. Depending on what state you live in, between the 15.3% social security tax plus the higher tax bracket percentages that will apply to your dancing income for federal and state income taxes, not being able to claim yourself as a dependent on your own tax return could result in you having to pay an effective tax rate of ~30%+ on your $25k of dancing earnings. Thus that money you will be putting in the bank will not remain all 'yours' once April 15th rolls around, and you have to cut $8,000+ worth of checks to the IRS and your state tax agency.

    Also, since you are technically considered to be a sole-proprietor independent business as opposed to an 'employee', the IRS tax return filing minimum is only $600 ( if received from a single 'payer' i.e. the same club ). see for a very general description of how sole proprietor business taxes work ... and in particular the sections about self-withholding and estimated tax payments.
    Last edited by Melonie; 07-22-2014 at 03:38 AM.

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    Senior Member SexedUpCat's Avatar
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    Default Re: Dependent and Tax Returns

    Thank you so, so much, Melonie! You really are a life saver. I knew I'd have to take the hit as a dependent this year (I'll have definitely made less than half their income come tax season), but next year I'll be able to be independent no problem.

    In the mean time, you've taken a huge weight off my shoulders, so thank you.

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    Default Re: Dependent and Tax Returns

    Sorry to reopen an old ish thread, but I'm in a very similar situation.

    21 year old college student dancer living on my own, my mom said I wasn't claimed as a dependent last year but I know my tuition was claimed as I remember having to send my parents my tuition statement. Not sure what my club reports. I know that they do 1099s, however I did not fill one out when I started and still haven't so they only have my name and address and a copy of my ID. I'm also trying not to tell my parents what I do.

    My questions are: Would a 1099 be sent out and where would it be sent to? My house or my parents? Not sure how much personal information my club can scrape together from what they have (full name, address, and my ID copy.) My "vanilla job" info gets sent to my parents house, however my vanilla job is also at my school and therefore has the paper trail of my "address" being my parents house despite the fact that it isn't. Last year and years previously on my vanilla job, I did all my own taxes on my own. Also, how do I file separate from my parents? Is there a way? (I read somewhere about section C?) Or do I have to bite the bullet and think of an excuse to tell my parents how I made the money I did (as Melonie was saying to tell them the amount for the household income?) to avoid them being investigated.

    Thank you!

    Edit: I also won't be needing to fill out another FAFSA again as this is my last year in school. If that helps any. Upon researching, since it's my last year of school and by the time April rolls around I'll be toward the end of my last semester in college ever, will I still have to be claimed as a dependent? The FAFSA from what I understand is income from the 2012-early 2013 (before I was dancing) but April tax deadline is from 2014 which makes it confusing.
    Last edited by MelissaRenee; 11-04-2014 at 09:11 PM.

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    Default Re: Dependent and Tax Returns

    Would a 1099 be sent out and where would it be sent to? My house or my parents? Not sure how much personal information my club can scrape together from what they have (full name, address, and my ID copy.)
    Your own copy will be sent to whatever address the club has on file. The IRS and state tax agency copies will be sent to the correct IRS and state tax agency addresses.

    The IRS and state tax agencies don't really care about addresses - they use Social Security numbers for cross-links. And, unfortunately, the IRS and state tax agencies also don't care if a particular taxpayer actually received 1099 copies or not. If the IRS and state tax agencies themselves received 1099 copies, they are going to try to cross-link that 1099 income received by person with SS# 123 with a tax return containing SS# 123. That could be the tax return the person filed. That could also be the tax return which a parent filed showing the person with SS# 123 as their dependent.

    Thus a key question is whether or not the club actually had / has your SS# ... because without it the club doesn't have enough information to fill out and send out a 1099 !!! If the club did send out 1099's reporting your 2013 income, or will send out 1099's reporting your 2014 income, at some point IRS computers are likely to link up that reported income with any tax return listing the same SS# ... i.e. the parents tax return claiming a person with SS# 123 as a dependent, if the person with SS# 123 didn't/ doesn't file a 2013 or 2014 tax return themselves.

    It's easy to file your own tax return. Where independent contractor businesses like dancing and camming are concerned, besides filling out long form 1040 you also have to complete and file form Schedule C 'profit or loss from a business'. The key question will be checking the box 'can you be claimed as a dependent on another person's tax return' ? Where college students are concerned, that really boils down to how much money the student earned versus how much money the parents earned. If the college student's earnings were insufficient to cover 51% of their own costs of living / college tuition cost ( net of FAFSA grants and loans ), odds are that the IRS will interpret them to be dependents of their parents. As described above, being claimed as someone else's dependent will mean that deductions and exemptions can't be claimed by the dependent thus a higher tax bill, while the deductions and exemptions can be claimed by the parents thus a lower tax bill.

    In regard to FAFSA filing dates, it would appear that if you completed a FAFSA form between January and June of 2014 you won't need to file again for FAFSA benefits covering the August 2014 to May 2015 'school year'. If another FAFSA filing isn't necessary, disclosing your income to your parents won't be necessary either.

    In regard to IRS filing dates, the question of being a dependent shouldn't be a factor for the 2015 tax year ... which runs from January to December of 2015 with tax return filed by April 15th 2016. But the tax return which must be filed by April 15th 2015 is for the 2014 tax year ... which runs from January to December of 2014 - where it is highly likely you will still have dependent status.

    However, because you'll still be a college student for part of the 2015 tax year, it would be a good idea to try and make your spring tuition payment before December 31st to take the 51% support question off the table for 2015. If that's not possible, then tuition payments will be made and reported in 2015, the potential for substantial parental support will exist in the first half of 2015, and the 51% support test could force you to file as a dependent again for the 2015 tax year. But if your earnings level shoots up after you graduate, to the point where it comprises a significant percentage of your parents' 2015 income and can adequately explain how you were able to pay for your own spring tuition plus costs of living, dependent status questions should disappear.

    Filing a 1Q estimated tax voucher and making January 15th 2015 estimated tax payments to the IRS and your state tax agency for taxes owed on your 2014 income would also help establish your financial IN-dependence in 2015. In addition, this will reduce the size of the 'hit' you will take on April 15th, when the taxes due on both your 2014 income PLUS the estimated taxes due on your 1Q ( Jan-Feb-Mar ) 2015 income would need to be paid.
    Last edited by Melonie; 11-05-2014 at 04:53 AM.

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    Default Re: Dependent and Tax Returns

    Thank you soooo much! That cleared everything up

    So if I'm a dependent I can't take my receipts to an accountant and claim deductions? Or I just can't claim myself + the tuition credit?

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    Default Re: Dependent and Tax Returns

    ^^^ dependent or 'independent', you still need to report your 'business income' via Schedule C. If you have receipts for 'business expenses' these can be subtracted from gross revenues thus reducing your 'business income'. This in turn reduces your form 1040 taxable income, thus reduces taxes owed.

    The types of deductions and exemptions affected by dependent status are on Form 1040 ... the ~$4,000 'personal exemption' for yourself, potentially the education tax credit ( dependent status assumes this was paid by your parents ), etc.

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    Default Re: Dependent and Tax Returns

    Thank you very much!

    I'm applying for US Citizenship right now and definitely want to have everything a-okay with my taxes for that. It's just such a confusing process! To be honest I'm really scared something along the way won't match up if I don't do it right/my club sends out a 1099 and it doesn't match up properly because they don't send me one for example and I report the wrong amount by accident. I think everything's gonna be okay though! Just a bit freaked out because I'm already scared about being denied based on my profession. Since I model, too, do you think I could say it's from my "modeling business"/do I have to say at all what I do (providing my club doesn't send out a 1099...and can they send one to the IRS but not to me?) If they don't send it out because they don't have my SSN, do I just file a 1099 on my own? I'm also kind of worried about the "good moral behavior" part of applying for citizenship and if they find out I worked as a dancer they'll consider that against that.
    Last edited by MelissaRenee; 11-08-2014 at 06:35 PM.

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    Default Re: Dependent and Tax Returns

    ^^^ if the club does issue a 1099 to the IRS ( regardless of whether a copy finds it's way to your own mailbox ), it is a simple matter for them to match up the club's employer ID number with the type of business being conducted.

    If the club does issue a 1099 to the IRS, and you receive a copy, you must report the amount of income shown on the 1099 as a line item on your Schedule C.

    If you don't receive a copy, you will still need to report the same amount of ( non-1099 ) income as a line item on your Schedule C. Where non-1099 descriptions are concerned, you can certainly say 'modeling income' etc.

    However, if the club issues a 1099, and you do not receive a copy thus do not make a line item entry on your Schedule C using the same payer name as is shown on the 1099, this could attract IRS attention.

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    Default Re: Dependent and Tax Returns

    Thanks! If I don't know how much they're claiming, how am I meant to make it match up though D: I've kept track of everything, but I want to be sure the numbers add up!

    On the N-400, they ask about work history and I'm claiming self employment. However, if there's a 1099 from a company that's a little confusing. Has anyone gone through the whole citizenship process/known any dancers who have?

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    Default Re: Dependent and Tax Returns

    ^^^ 1099's are records of payments to self-employed individuals. Records of 'employee' earnings use a form W2

    In regard to knowing how much the club is likely to report, that would normally come from your 'business log' where you recorded how much you earned each night on one side, and recorded any 'business expenses' you incurred n the other side. Alternatively, it could come from a record of the deposits you made into a 'dedicated' bank account. Since you haven't done this, the best you can do is guess and hope.

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    Default Re: Dependent and Tax Returns

    Hello,

    Been a fan of you for 10 years, quit dancing 4 years ago, but still a fan. I may restart soon, but as of now: Tax education credit? I forked out $1600 to take organic chemistry and history (the history was a residual prerequisite). I made $11/hr as a pharmacy tech and worked an average of $25 hours a week since March 2014. What kind of tax education credit will I get? I was part-time, so I don't expect the full $2500....but? Thanks!
    "I can feel guilty about the past, apprehensive about the future, but only in the present can I act." - Abraham Maslow

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    Default Re: Dependent and Tax Returns

    The 'American Opportunity' tax credit indeed allows for up to $2500 in total credits, of which up to 40% = $1000 is 'refundable' ( beyond the amount of actual taxes owed by that person ). So yeah you're going to be eligible for some amount of this tax credit, but the question is how much.

    For starters, this tax credit is 'pro-rated' ... in this case 100% of the first $2000 in educational costs, plus 25% of the next $2000 in educational costs, thus the maximum credit of $2500. Assuming that between the $1600 you directly spent on tuition, and another $400 for books and other educational expenses, you can probably claim $2000 worth of this tax credit.

    Now the question is whether you'll actually be able to receive / apply the entire $2000. No question that 40% * $2000 = $800 will be 'refunded' regardless of the amount of income taxes owed. But the remaining $1200 will only be applied to the extent that it offsets actual taxes you owe. Based on your comments, your gross earnings are likely to be $11 * 25 hours * 36 weeks = around $10,000. If this is your only reportable income, given personal exemptions and progressive tax brackets it's unlikely that you'll actually owe any income tax. But as an employee of the pharmacy, you will owe 6.75% * $10,000 or $675 in SSI taxes, which the tax credit can be used to offset.

    Thus it's probable that you'll be able to 'cash in on' $800 + $675 = $ 1475 worth of this 'American Opportunity' tax credit based on your statements. However, for 2014, there is also the potential issue of ACA penalty tax if you did not have 'qualifying' health insurance for 2014. At 1% this will add another $100 in ACA penalty tax, but this will also allow another $100 worth of 'American Opportunity' tax credit to be applied, thus cancelling each other out.

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    Default Re: Dependent and Tax Returns

    So I'm starting to look into this (club is issuing 1099s soon so I spoke to an accountant) and they told me about Schedule C and everything. I have the (estimated) amount of money I owe saved up for my first year (2014) and getting everything together for my estimated payment for the first quarter this year.

    Just to clarify, I am able to claim my own income via schedule C whilst being a dependent as long as I do not claim myself...and it is possible for me to keep this "hidden" from my parents by doing my own taxes and just not claiming myself. (Also, I won't need to file another FAFSA so disclosing my income to my parents for household income?)

    I would love to be open with my parents but at this point it would cause a lot of problems.

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