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The Tale of The Parents Who Almost Took Out Their Own Kids

Jul 25, 2014

Once upon a time, there was a family with two children. Inspired by their hard-working parents, the children had each gotten a job. Each one earned around $11,000 working hard in the summer and during every available free hour while attending school. “Oh well, I guess we can’t claim them anymore, since they made so much money last year,” the parents sighed, while preparing the 1040 EZ form that they had for each child.

As they finished each 1040 EZ (each got a modest refund) and their own 1040 EZ return (they didn’t itemize and now owed since they weren’t claiming kids), their mailman delivered a little postcard from the magical folks at Larry’s Income Tax. “Why do they keep bugging us so,” the husband blurted out. He automatically started to crumple the postcard for the trash can, but something stirred inside him. The fact that they owed this year, plus the postcard saying “Free Consultation” and “$25 off,” made them say, almost in unison, “what the heck, let’s give these guys a try.”

Welcomed with open arms, the good folks at Larry’s went through the interview process and reviewed the documents—asking bunches of questions along the way---some fairly blunt, like, “do you do any side work for cash?” “Have you been incarcerated?” and, “Do you receive any type of welfare benefits”. In the end, they told the couple that not only did they not owe, but due to their income, they actually qualified for Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) and Louisiana’s school deduction credit. We’re talking several thousand dollars here. “Good thing you came in and didn’t file that 1040EZ your “friend” had done for you”, they said.

Hesitant because of the huge difference in their favor, they ask for an explanation, their “friend” is no accountant, but they just couldn’t believe that “he” would be so far off. Larry’s staff gladly told them:

“Basically, you can claim your children as long as the following apply:

*They’re a US citizen, national or resident. Can also be a Canadian or Mexican resident.
*They lived with you for more than half the year.
*No one else is entitled to claim them
*They’re not married
*They’re not claiming themselves or claiming a dependent on their own return
*You provide over half of their support
*They are under 19 if not in school, or under 24 if they’re full-time students(this age requirement is waived for permanently and totally disabled children).

Your twins are 16 and lived with you the entire year. They’re healthy full-time students. When they turn 17 next year, they won’t qualify for CTC anymore, so you’ll lose $2000, but you’ll still be able to claim them both as long as they stay full-time students until they turn 24. In fact, if your income remains less than about $49,000 (filing MFJ with two kids), you’ll also keep qualifying for EITC until the kids turn 24—as long as they are full-time students.

So let’s convince them that higher education is the way to go---whether a traditional university, votech, community college, beauty college---tuition and fees paid to basically any post secondary educational institution that is eligible to participate in the Dept of Education's student loan programs is likely to qualify for this credit.

A cool bonus is that the American Opportunity Credit available for college tuition and books is now available for the first four years (used to be two) and will most likely get renewed and be available by the time the kids make it to college. Keep in mind that if, after they turn 19, they take a year off of school to “find themselves” or to “chart their path in life,” you will not be able to claim them as dependents if they make over $3900 (and no EITC at all).

Now, since you were able to claim the kids this year, they couldn’t claim themselves on their own 1040EZ’s like you had originally prepared, so now their refunds aren’t as much, but that’s a small compromise compared to the refund you guys ended up receiving—tell the kids to claim “S-0” at work and they should be fine next year.”

Amazed, and with their minds now at peace, each spouse signed the authorization to electronically file their return, their refund will be direct deposited—at no additional charge, mind you—in 10-14 days and they were so happy they almost forgot to use that $25 off postcard.

Almost. Alas, when the wife reached into her purse to get the checkbook (let’s face it—most husbands don’t know where the checkbook even is) to pay for the tax prep fees, she saw the coupon and was relieved when the tax preparer happily told them that it wasn’t too late—good thing she noticed—and then proceeded to remind them that if they referred a new client, they would receive another $25—for each new client they sent! The visit couldn’t have gone any better. “Everything is right in the universe,” they each thought in perfect unison…not knowing how connected they were at that exact moment…and each year they returned to Larry’s Income tax happily ever-after.

The End.

Category: Taxes