I am submitting my tax return (late). Must I report income from my parents (my only income)? If so, how?

Question

I am not working, as I am back in school and my only income is help from my parents. I am too old to be a dependent. I am not sure how to report that income, since the only place I see to report it on the return asks for an employer ID -- but reporting no income seems wrong, so.... ?

Answer 1

Some of this advice is sound, but as a lawyer, let me qualify it. To clarify, as suggested above you are not too old to be a dependent if you are a family member you have less than $3300 in income AND your parents are providing MORE THAN HALF of your support. It is important that you understand all of these conditions: If you have no income but are living on your savings, or other monies previously given to you (e.g., inheritance) or from another source (e.g., alimony), you were NOT a dependent. But if you meet the above definition according to all criteria, you WERE a dependent, and the case for you is closed. Your parents were (or are, if they did not take it) entitled to a deduction on their tax returns.

Just because they gave you money does not mean it is "income." It can be, by law, a "gift" or "support," and that brings different consequences for them, not you. Keep in mind that income has a very specific definition, one created by law. It is not "wrong" to report no income if you had none, that is, if you "earned" no money or received no profits or return on investments or sales.

But here's where it gets messy. If you were NOT a dependent for the reasons I said above, money given to you would be considered a gift (money or property given to anyone, including relatives, who are not dependents). And if your parents did NOT claim you as a dependent, when estate taxes come if there ever were an audit, they or their heirs might have some explaining to do as to what the money given to you was at the time.

By law, the IRC taxes the GIVER of gifts, not the recipients, (because gifts and estates could be used to divert and shelter income, or to discourage work through giving gifts). Certain gifts (prizes and awards from lotteries and contests) or bonuses from employers are swept into the definition of income, but not gifts in general. The tax instructions make this clear.

Therefore, it is your PARENTS who should be monitoring and reporting how much money they are giving you, much as a grantor on a trust reports expenses paid from the trust as a trust and estate tax. The IRC has a limit in 2006 of $12,000 a year that can be given to you as a gift. For "loans" with "no interest" (money you expect to pay back), the IRS classifies such loans as below-market loans, and, depending on the amount, your parents may have to pay foregone interest as income they otherwise would have earned but are sheltering in the forms of gifts to you.

The IRS has many publications on this, specifically Publication 950 for gifts. Go to IRS.gov to retrieve it.

The bottom line is that if you were a dependent in 2006, the money to you was not a "gift" and you should accept that you were their dependent, and technically they could adjust their taxes accordingly (and arguably should for recordkeeping purposes). But if you TRULY had no income BUT you were living on other funds for half or more of your expenses, you were NOT their dependent and that money was a gift.

Hope that makes sense.

Answer 2

If you did work for your parents, maybe remodeled their house or something, and they paid you to do it, then technically and legally it would be reported as self-employment income. If they're just helping you out so you can go to school, then you don't report it.

You're never too old to be a dependent relative if you meet the criteria. If you make under $3300 a year (2006 number - 2007 will be a little higher) and your parents provide over half of your support, then they can probably claim you no matter how old you are. Age 24 is the limit to be claimed as a dependent CHILD.

Answer 3

You need to file an amended tax return. Go to www.irs.gov for information. For example, the amended 1040 form is a 1040X. You need to verify with your parents if they filled out a tax return for you. And which form they used. If they didn't, then you have to contact the IRS and get a copy of the submitted return. This additional income, do you want your parents to know about it or not? If not, you may have to see a tax lawyer to perform the amendment for you. In any case, get this resolved soon. If the IRS thinks you're trying to hide that additional income, they will be on you like white on rice. And this needs to be done for your state tax, too.

Answer 4

I am a parent with six daughters and have done tax returns since 1971. When kids get the long green from mom or dad it is usually under the gift exemption status. If you got less than 11,000.00 from each parent there is nothing to report, declare, yaddah. Stay in school and get a good job so you can support them when they get old and social security goes belly up.

Answer 5

If your parents are supporting you while going to college, you have no income to report. No need to file income tax.

Answer 6

Wouldn't you treat any funds your parents give you as a gift? You have no income yourself. So no need to report what your parents Gave you.

Answer 7

if you dont get a W2 or 1099 - don't report it. If you do, you will have to pay taxes on it...

Answer 8

There is a long answer and a short answer but judging from your concerns, a long answer would be appropriate.

Whether you need to pay taxes on the financial support (not income) which you receive from your parents would depend on whether did your parents claim any tax relief (or tax deduction) for the amounts paid to you. If they had already paid taxes on the funds which you received, i.e. they did not claim any tax deduction or the funds came from their savings, then there is no need for you to pay any further taxes on such funds. Since you are too old to be a dependent, your parents would be unable to claim any tax deduction for the financial support provided to you, unless such payments are declared as wages paid for services rendered by you, so it is obvious that they have already paid taxes on those funds given to you, whether they came from your parents' income or from their savings, and you have no need to pay any further taxes.

If desired, one way for your parents to claim tax deductions for such payments made is to set up a home-based business and hire you to perform specific services for the said business. In such instance, the payments you received from them would not be considered as financial support but should rightly be treated as income earned by you, so that you can report it as such and then pay taxes for such income.

My advice is to make life simple for yourself and for your parents by treating their financial support for your studies exactly as you have described, viz. "help from your parents", rather than being hung up on trying to pay income taxes. As the Lord said, "give to Caesar what belongs to Caesar and give to God what belongs to God". In other words, you don't need to pay taxes if you don't have to do so.

It is perfectly lawful to AVOID taxes but it is unlawful to EVADE taxes. All of us have a moral duty to Avoid taxes because we need to support our families and other personal commitments but it is absolutely wrong to Evade taxes, as we have a legal obligation to pay taxes, for the community services provided by the government. You're NOT evading taxes if you're NOT earning any income (unless you've received unearned income, from interest on savings, investment profits, etc), so there is no need for you to report any income for the financial support or help received from your parents.

My personal recommendation would be to treat all payments received from your parents as a interest-free personal loan (or with a token interest, not higher than interest on savings from a bank), so that you can repay them from the future income you would be earning after you finish your studies, which you may then pay taxes on your future income, depending on how you structure the terms of the personal loan. I believe loan repayments for college education education are tax-deductible but you need to consult an accountant, to be sure.

Please feel free to contact me for clarification, if my comments are unclear.