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Money Girl
096 MG Can Your Mother-In-Law be a Tax Exemption?
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At LinkedIn Sales Navigator, help you sell like a superstar today. Hello, and welcome to Money Girls, quick and dirty tips for a richer life. I'm your host, Laura Adams. Today's show is about what makes someone a dependent or an exemption for income tax purposes. It's important to understand who you can claim as a dependent on your taxes because you get a tax exemption for each one. Tax exemptions are a good thing because they save you money by lowering the income on which your income tax is calculated. There are two types of exemptions, one, personal exemptions, and two, dependent exemptions. For 2008, the amount you can deduct for each of these exemptions is $3,500, but this amount is reduced by a phase out of exemptions once your adjusted gross income or AGI gets into the six figures. I received an email from Amanda in Fairfax, Virginia. She writes, "I recently got married to a wonderful guy. Now during the post-wedding cleanup, I was filling out new tax forms to change my tax status from single to married. My question is if I take no deductions and my new husband claims me as a dependent, can that hurt or help us financially?" Thanks for the question, Amanda, and many congratulations. My advice is to always take every tax exemption that you can. You can usually claim one exemption for yourself and one for your spouse. These are the personal exemptions. Your spouse is actually not considered your dependent nor are you considered his dependent. Amanda, if no one else can claim your husband as an exemption, I recommend that you do so. The other category of tax exemptions are for dependents. You can claim one exemption for each person you can legally claim as a dependent. In order to claim a child as a dependent, they must have a social security number or taxpayer identification number and pass an exemption test. I'll give you the test details in a moment. If you're divorced or separated from a spouse, the parent who has custody of the child for more than half of the tax year can claim the child as a dependent. It doesn't matter which parent provided more financial support for the child during the year. But what if you care for other family members, like a mother-in-law, don't you get to claim and receive a tax exemption for them as well? Absolutely. If they pass the exemption test that I mentioned, so here it is. Number one, they must be a relative or if not a relative, live in your household all year. Number two, they cannot file a joint tax return with a spouse, except to claim a refund of tax due. Number three, they must be a citizen, resident or national of the U.S., or be a resident of Canada or Mexico. Number four, they must be someone for whom you provide over one half of their total financial support. And five, they must have less than $3,400 of gross annual income, unless the dependent is a child under the age of 19 or a child who is a full-time student under the age of 24. Note that the $3,400 income threshold was the amount for 2007, and it may increase for 2008. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year and work projects, holiday plans, or travel, planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but Policy Genius makes the process a breeze. With Policy Genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy Genius's technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. And if you ever need help or guidance, they have an expert license support team to answer your questions, handle all the paperwork, and advocate for you throughout the process. It's never too late to plan ahead. Go to PolicyGenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's PolicyGenius.com. Are you struggling to close deals? Cold outreach is wasting the time of both the buyer and seller at every stage, especially when sellers are using outdated data. Your organization can overcome these challenges with LinkedIn Sales Navigator, the first deep sales platform. Right now, you can try LinkedIn Sales Navigator and get a 60-day free trial at LinkedIn.com/trial. That is LinkedIn.com/trial for a 60-day free trial. Let LinkedIn Sales Navigator help you sell like a superstar today. AI might be the most important new computer technology ever. It's storming every industry and literally billions of dollars are being invested. So buckle up. The problem is that AI needs lots of speed and processing power. So how do you compete without costs spiraling out of control? It's time to upgrade to the next generation of the cloud, Oracle Cloud Infrastructure or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has four to eight times the bandwidth of other clouds, offers one consistent price instead of variable regional pricing, and of course, nobody does data better than Oracle. So now you can train your AI models at twice the speed and less than half the cost of other clouds. You want to do more and spend less like Uber, 8x8, and Databricks Mosaic. Take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced oracle.com/advanced. It's important to distinguish that gross income means all taxable income. This includes wages, unemployment benefits, receipts from rental property, and some Social Security benefits, for example. How much Social Security income is taxable depends on the total amount of benefits received and other income sources. But if someone's only income is Social Security, those benefits are generally not taxable, and that person will usually pass the test to qualify as a dependent. I'll put a link in the show notes to IRS Publication 915, which gives complete details about what Social Security benefits are taxable. In some families there may be several people who collectively support a dependent, such as a disabled parent. The law allows for a multiple support agreement, which is Form 21-20. Each financial contributor to a dependent support must sign this form and submit it with their tax return. If the following four rules are met in a multiple support arrangement, you can receive a tax exemption for the dependent. Number one, if you pay more than 10% of the person's total financial support. Number two, if the amount paid by you and others totals more than one half of the person's total financial support. Number three, if each contributor could have claimed the tax exemption on their own tax return except that each gave less than one half of the total financial support. Number four, if each contributor who paid more than 10% of the support agrees that you can take the tax exemption on your tax return. If you need more details about tax exemptions or the face out amounts, I'll put a link to IRS Publication 501 in the show notes at moneygirl.quickendertietips.com. I want to thank everyone who nominated the show for the 2008 People's Choice Podcast Award. Now I need to ask you to help us win the award for the business category by going to podcastawards.com and casting your vote for moneygirl. You can vote once every 24 hours until the poll ends on November 6th. So don't delay, please vote today. Another way you can show support for the podcast is to complete a short survey at moneygirl.quickendertietips.com. This survey was designed to help me create better podcasts and determine what topics to cover in my upcoming book, cha-ching, that's all for now, courtesy of moneygirl, your guide to a richer life. [music]