College grad at home -- philosophical (and one tax) questions

[Petunia 100]

Then you'd have to be providing for her with about $37,001 in support. Is she still young enough to qualify as a dependent now that she is not a full time student?

There are FAQ's at the IRS website that are helpful.

Her income doesn't matter if she's under 19, or under 24 and a full-time student, so long as her parents provide more than half of her support. Now that she is no longer a full-time student, assuming she has already turned 19, she would have to earn less than one personal exemption to still be a dependent.

[jpg7n16]

That's true. Last year the threshhold was $37,000. She'll be making just under that, so that won't be an issue (but other things might).

Try running the info through this tool: (click begin)

Who Can I Claim as a Dependent?

Based on what you said in the thread so far, I ran that info through and got that no you could not claim her, whether you wanted to or not.

[snafu]

Congratulation to daughter recently graduated and joining the workforce. Since she's happy home you might offer money management guidance.. She would benefit by joining her employer's retirement plan particularly if there are any matching funds. The early years are so important because of the wonder of compounding. I hope she has a couple of credit cards, clearly understands how they work, chooses those with benefits like cash back and pays the entire balance by each due date.

Getting into the habit of 'paying yourself first,' 12% of net is an excellent start. It's a terrific idea to have her pay her share of the phone cost and set aside sums that would cover rent, food and utilities if she were on her own gives her a nest egg to cover initial costs.

[marvholly]

My parents charged me 25% of my net income while I lived at home (18 months). I still had to contribute time/effort to household chores. Since you don't NEED the $ you might want to do somthing similar to what they did: Put it all in a savings account and give it to her when she either buys her first place or gets married.

As for taxes, this is likely to be the LAST year you can clain her (stunt for 5/more months).

[esb3357]

Be very careful about claiming her as a dependent. Technically it's 50% of the support or if they find a full time job before July 1st (out of college). If you claim her it will majorly impact her retirement and other contributions.

[Petunia 100]

To clarify what I said earlier, to claim a dependent, the person must be either a qualifying child or a qualifying relative. Each type of dependent has its own set of rules. Until now, your daughter has been your qualifying child.

The 5 tests for a person to be your qualifying child are: relationship, age, residency, support, and joint return. Your qualifying child must pass all 5 tests. The test which is going to prevent your daughter from being your qualifying child for 2012 is the age test. From IRS Publication 17:

Age Test
To meet this test, a child must be:

Under age 19 at the end of the year and younger than you (or your spouse, if filing jointly),

A full-time student under age 24 at the end of the year and younger than you (or your spouse, if filing jointly), or

Permanently and totally disabled at any time during the year, regardless of age


Since your daughter will not be a full-time student at the end of the year, she will not meet this test. Therefore, your daughter will not be a qualifying child for 2012.

The other way that she could be your dependent is if she were a qualifying relative. The 4 tests for qualifying relative are: not a qualifying child test, member of household or relationship test, gross income test, and support test. Your daughter must pass all 4 tests to be your qualifying relative. Here it is the gross income test which she will not pass.

From IRS Publication 17:

Gross Income Test
To meet this test, a person's gross income for the year must be less than $3,700.


If your daughter begins working full-time now, she will not pass the gross income test.

Conclusion: your daughter cannot be your dependent in 2012. She is neither a qualifying child nor a qualifying relative.

Publication 17 (2011), Your Federal Income Tax

[Aristippus]

Right you are, Petunia -- I misread that $3700 as $37000. And yes, it is just about time for my biennial eye exam!

[Eleanor]

You could charge her rent and put it into an account for her to use when she moves out.

While this definitely sounds like a good idea, if the whole goal is to encourage her to be financially responsible, then you establishing how much she saves and putting it in an account seems to miss the point.

From what you say your daughter sounds like a very responsible and mature person. I can relate to this situation because I graduated from college last year, but I did not move back home after graduation. My parents still support me by paying my health and car insurance as well as my phone plan because I can't realistically pay for my own health insurance and the car and phone are such small amounts and part of a larger family plan that they said not to worry about it. I do pay my own rent, utilities, internet, gas, groceries, etc.

Since your daughter isn't paying for rent and utilities perhaps you could have her take over the other things like car insurance, phone bill, maybe health insurance, etc. and then trust her to save and responsibly spend the rest. I'm sure she doesn't want to live at home forever so imagine she'll be pretty motivated to save for deposits, first and last months' rent, etc. all on her own, but you could always discuss it with her.

[breathemusic]

I can understand that if you have the means financially to be able to take care of all the home bills, you may not need to charge her rent, or bills... but I think it's useful in teaching responsibility.

My one suggestion is that rather than deciding on some arbitrary flat amount, come up with a flat amount that maybe goes toward rent, but then decide on a percentage of all the utilities. Be that 1/3 or 1/5 or whatever you decide. That will allow her to see how utilities can fluctuate throughout the year and drive home the need to budget for expenses that vary. Plus, I think requiring someone to pay a percentage of utilities encourages them to watch their water/electricity/ etc. use, where as a flat rate would not.

If you don't really feel like you want to charge her a high amount to live at home, you don't have to, but by charging at least something, and making it proportional to what your own monthly expenses are, it will be a more realistic lesson.

Then you can always decide whether or not you want to keep the money or eventually help her out with it later, etc.