Tax Preparer Course Factors About Resolving Dependency Claims

March 31, 2012 by  Filed under: Taxes 

A conflict between taxpayers about claiming someone as a dependent often arises during tax preparation work. Sometimes shared custody of a child after a divorce creates disagreement over the dependency exemption. In other instances, never-married parents dispute who claims their child as a dependent.

The optimal approach to these problems is explaining the facts from a tax preparer course about claiming a dependent. Following the rules before submitting tax returns is much easier than having the IRS enforce those rules after more than one tax return lists a dependency exemption for the same person.

Dependents are divided into two classifications. Both of these categories are a primary area of study for the tax preparer examination. First are the criteria for a qualifying child. A taxpayer who can claim someone as a qualifying child takes priority over another person who can claim the child under the qualifying relative criteria.

When someone meets the qualifying child rules for two or more people, the parent prevails in claiming the child as a dependent. However, a professional may find after becoming a tax preparer that a greater tax benefit occurs when a grandparent claims a qualifying child instead of the parent. This is acceptable as long as both taxpayers agree and file tax returns accordingly.

Some coordination is demanded of a tax preparer to assure that everyone understands the circumstances and that only one tax return lists the qualifying child as a dependent. If none of the two or more people who can claim a qualifying child are the parents, the person with the highest gross income succeeds in using the dependency exemption.

The most common situation to comprehend for the registered tax return preparer exam is when both parents are eligible to claim a dependent according to the qualifying child tests. The parent with whom the child resided the most nights during the tax year takes precedence in claiming the dependency exemption. When the nights are exactly equal, the parent with the highest adjusted gross income prevails.

This tie-breaker process is a critical part of tax preparer training to master. Methodically applying the steps assures that taxpayers understand who is entitled to claim someone as a dependent. These same measures are deployed by the IRS when multiple taxpayers claim a dependency exemption for the same individual. A taxpayer may have to demonstrate eligibility for claiming a certain dependent. Doing so requires employing the tie-breaker standards.

Mistakenly claiming a dependent that someone else subsequently shows is incorrect becomes potentially expensive. The erroneous taxpayer is forced to pay additional tax and forfeit any tax credits that are contingent on having the dependent. Penalties and interest also apply to underpaid tax.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for tax preparer course and tax professionals. Access to free questions for the tax preparer examination is available on their website.

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