THE OTHER DEPENDENT TAX CREDIT – “QUALIFYING RELATIVES”
If you have a dependent who does not meet the criteria for the Child Tax Credit (CTC), you may still qualify for a $500 credit called the Other Dependent Credit. Examples of qualifying dependents include children of age 17 or 18 (or up to age 23 if they are full-time students), and adult relatives who are unable to support themselves due to a disability. (see more on claimed adult dependents below)
Your Claimed Dependents Must Be:
- US citizens, resident aliens, or nationals, and must have a taxpayer ID number (SSN or ITIN).
- Children must not have been claimed for the CTC by you or anyone else, must rely on you for at least half of their financial support, and generally must live with you for over half the year.
- Claimed adult dependents (called “qualifying relatives” by the IRS) must have a gross income of less than $4,300 for 2020, and must either be your true relative or live with you full time. The term “true relative” covers a broad range of relationships, including in-laws and stepchildren.
A qualified tax advisor can help you determine your eligibility for the Other Dependent Credit. If you have more than one qualifying dependent, you may be able to take the credit for each of them.
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Potentially Taxable Events – Did You Know?
In addition to traditional income sources like employee wages and business profits, there are a number of other activities and transactions that the IRS classifies as potentially taxable. It is important to consider all of these “taxable events” for your tax return.
The most commonly overlooked taxable events include:
- Investment income, including receiving stock dividends or cashing in bonds
- Converting a traditional IRA to a Roth IRA
- Forgiveness (discharge) of a loan or other debt, including student loans
Sale of assets such as vehicles, musical instruments, or a home at a gain (that is, for more than - you paid to purchase the assets)
- Sale or exchange of cryptocurrency (like Bitcoin), or making purchases with cryptocurrency
- Withdrawing funds from a retirement plan (or from the cash value of a life insurance policy if you withdraw more than you have paid in premiums)
- Gifts and inheritances
A tax professional can advise you about which events in your life may have tax implications, and how to properly report those events. For example, in some cases, you may only need to declare the event to the IRS if the amount of money involved exceeds a minimum threshold, known as an “exclusion.”
