Tax options for 20 year old full time student making under $8000?

Question

Apparently since I am under 21 and a full time college student, my parents can claim me on their taxes so long as I earn under $8000 per year. The benefit of them claiming me is that they receive roughly $1400 back where as I would receive only $450. What happens if I earn between $8000 and $11,000 (my potential earnings)? Would they still be able to claim me but just for $1400 - (Actual income - $8000) or is the whole option unavailable?

What are other options I could consider? My bank advisers tell me I can write off my expenses but they don't know how to and is it possible for that $8000 cap to rise since most of us who make under that did receive raises do to the min. wage increase?

We use TurboTax (who apparently told my mother this info) but I could not find any situations similar enough on Answers or google.

Answer 1

The relevant information is not your income, but whether or not you support yourself. If you provide over half of your own support, then you are not a dependent. If you do not provide over half of your own support, as long as you are a full-time student under the age of 24, you may be claimed by your parents as a dependent regardless of your income.

If your $8,000 income is from self-employment, you can deduct your expenses related to generating your income, in addition to the standard deduction of $5,350 in 2007. If you are not self-employed, you can deduct only the standard deduction. This leaves you with at most $2,650 to pay taxes on, which will be $265.

Answer 2

The $8000 cap you talk about doesn't exist. What really counts is if you provide over half of your own support or not - if you do, your parents can't claim you; if you don't, then they can.

You mention writing off your expenses. Is your income from self-employment? Then yes you can. You fil out a schedule C or C-EZ along with a 1040 - your self-employment income and expenses go on the schedule C, then you also fill out a schedule SE to calculate your self-employment tax (social security and medicare) - the numbers from the bottom of the schedules will transfer to your 1040 where your income tax and total tax (including the self-employment tax) will be calculated.

Turbo Tax will handle this - you just say yes, you have earnings from self-employment, then enter your info from your records.

If your earnings are from a job rather than self-employment, it's unlikely that you can write off expenses - you'd have to give more detail on what these expenses are for anyone to answer that part. Since you mention a raise for minimum wage going up, it sounds like you are an employee rather than self employed. What expenses are you talking about for writing off?

There are education credits for tuition and fees, but if your parents can claim you, then THEY get those, not you, even if you actually pay the expenses. Since education expenses count as support though, that might swing whether or not you are their dependent.

You don't just get to choose whether or not your parents claim you. If they qualify to, you are not allowed to claim yourself even if they don't claim you.

Answer 3

Your parents can continue to claim you as a dependent regardless of your income. The disqualifier for them is if you pay MORE than 50% of your OWN support. As long as you are a full time student under age 24 they can continue to claim you as long as you don't provide more than half of your own support, regardless of what your income is.

The value of the exemption that they claim depends upon their tax bracket, not YOUR income level. The maximum tax bracket is 35% so the maximum value of the $3,400 exemption is $1,190. Unless they are quite wealthy they're probably in a lower tax bracket. Most taxpayers are in a 25% bracket so the value is closer to $850.

Your "cost" of the loss of your personal exemption at your income level is $265, assuming an income of $8,000. If your income rose to $11,000, it would cost you $340 in higher taxes since you'd be in a 10% bracket at that income level.

You might be able to claim certain credits or deductions if you pay your own tuition. If your parents are paying your tuition, they get those credits or deductions. Your income is so low that those credits or deductions would be nearly worthless to you since they can only reduce your tax liability to zero. With $8,000 in income, your tax liability is only $265 so that's the most you can save by paying your own way.

Answer 4

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