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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Re: sudent credit splitable? Date: 2/22/2005 12:17 PM
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I want to make sure I understand what you said.

I just re-read what I wrote. Sorry about all the typos. If I didn't know what I was saying, I wouldn't be sure about it either. One of these days I'll learn to proofread.

Suppose the parents paid more than half the child's expenses, the child is a full-time student and less than 24. So the parents can optionally claim a (dependency) exemption for the child. They don't have to, but they can?

Change "expenses" to "support" and that's true. For tax purposes, the child is the parents' dependent. Whether they claim a dependency exemption for the child is optional.

If the parent's don't claim an exemption for the child, the child can claim a personal exemption?

No. One personal exemption per person. If one can be claimed as someone's dependent, one cannot claim a personal exemption on ones own return. This applies whether or not the personal exemption is claimed on the parents' return.

But you said if the child claims an education credit, the child can't claim a "dependency exemption" ? Do you mean they can't claim a personal exemption? Why not, because the child COULD be claimed as a dependent on their parents return, even though they weren't?

The education benefits are available on the student's return or the parents'. However, they must go on a return that claims the student's personal exemption. If no one claims the exemption, the benefits can go on either return, but if the parents claim the exemption the benefits go on only their return.

If you answer, please throw out some rough numbers for a situation where it might pay for the child to claim the education credit even thought the child is a dependent. For example, if the parents AGI is $50k, the child's AGI is $4k earned (summer and part time), tuition paid is $4k (an in-state school), is that even in the ball park where the child should claim the education credit? Yow tax strategizing is a pain.


At $4,000 of earned income the child would have no tax liability, even as a dependent. Taking the credit on the child's return makes sense only if the child has a tax liability enough to use it, unless the parents can't use it because of AGI.

Also, please throw out a rule of thumb for deciding when to stop supporting your child as a tax strategy. Something like "As long as you can contribute more than half of the child's living expenses, you will save your marginal tax bracket percent of that (eg 15-30%) in taxes on the first $2000 (the amount of a dependency exemption?) less the child's tax bracket percent (say 10%). So if you are going to give the money to the child anyway, you might as well do it while you can claim them as a dependent and they are in a low tax bracket." Is that close to a reasonable strategy? Please refer me to a good discussion of this.

I'm not really sure how to answer this. Because education expenses can be used by either the child or the parents (assuming the parents are providing support), it really doesn't matter how they get paid.

Phil
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