IRS tax question

[*MomTo2Princesses*]

My little sister is a full time student. My parents currently pay for everything for her, her "d"h, and my nephew. They pay the rent for her house, her food, her credit card bills, car payment, utilities, everything she needs except for her tuition. She has a federal loan for that. My BIL is a lazy bum who does nothing to help out. He sits on the couch and plays video games all day long while she is at school. He hasn't had a job in 2 years and says he can't find anything, so my sister went back to school. Neither of them have had any earned income. She said he was playing around on Turbo Tax the other day and has convinced her that they can get a $1000 refund because of her student loans. Does this sound right? Will she get audited for paying in no taxes but getting a refund? I do not want her to get in any trouble, and I really don't want my parents drug into it.

 

[rapmarks]

there are tax credits which would give them a payout (it is not really a refund) even if they pay no taxes.

 

[*MomTo2Princesses*]

Thanks so much for the response! Would that be a red flag for getting audited, though, reporting no income? I am so proud of her for going back to school, and I know the money would help her tremendously. I just want to make sure she isn't doing something she isn't supposed to.

 

[PatsMom]

At least one of the education tax credits is refundable, which means you can get back money you never paid in.

 

[sameyeyam]

I would encourage them to seek the advice of a tax professional. My daughter is a student and because we paid over 60% of her total living expenses we can claim her as a dependent. Which means that WE get the tuition credit, not her.

If your parents are paying for basically everything (except tuition) odds are they are paying over 60% of their living expenses and may very well claim them as a dependent. This is very important, because if your parents are claiming them on their taxes as dependents, your sister can't also claim the dependent deductions on her taxes.

Now, my daughter did have a small income. She was able to file and will get back the $41 that she paid in federal taxes. However, she did not get to use herself as a dependent or get the tuition credit, because we did.

So it is important to find out what your parents are doing. If they are not claiming 1 or more of them as dependents, then they may very well be able to get the tax credit.

 

[rapmarks]

I would think that parents of a grown child who pay most of their expenses can't get a dependant deduction unless they are handicapped in some way. It is something worth checking.
you don't get audited because you have no income. You get audited because you understate your income or overstate your deductions.
Hiring a tax consultant when you have no income? '
Try going to the AARP free tax locations for help. they may never have had the situation before, but will look into it for her. they are all volunteers. some are retired accountaints or even retired IRS agents.

There was a post on TUG from someone who must have been doing taxes professionally that a family of 4 had under 20 thousand earned income, paid no withholding and got 5 or 6 thousand from the government because of the earned income credit and other credits. to get the earned income credit, you must have earned income and doesn't sound like your sister does.

 

[Ava]

I would think that parents of a grown child who pay most of their expenses can't get a dependant deduction unless they are handicapped in some way.

If the child is a full-time student (which OP said her sister is), the parents can claim the child as a dependent up to age 23 or 24 - not sure of exact age. Depending on OP's sister's age, her parents may legally claim her as a dependent because of her full-time student status. Not sure if this is different because the OP's sister has her own home, but it would be worth looking into for the parents in this situation, IMO.

 

[rapmarks]

I guess iwas assuming that the sister was older. It is compicated, married with a husband and child, can she be claimed as a deduction on the parentss return?

 

[Cheshire Figment]

Although the daughter may be able to be claimed as a dependent to to both age, relationship, and percentage of support, if she files a Joint Return with her husband the parents cannot legally claim her. However, if they file as Married Filing Separate the parents should be able to claim her.

Without seeing actual numbers, etc., that is as much as I am willing to state.

 

[*MomTo2Princesses*]

Thank you all so much for your replies! My mom said she spoke with my sister last night about it and that my sister offered that my parents get the money because they are doing so much to help her and she felt that would be the right thing to do. I know things are really tight for her right now, and I was really proud of her for offering! I will suggest that my mom talk to her accountant to see what the best route for them to take would be.

 

[sameyeyam]

So glad that your mom & sister were able to come together and talk about this. Your mom should definitely be sure to let her tax preparer know the situation and he can tell them which way would be the best to file.

It might not be a bad idea for your sister to go with your mom or at the very least, give her all of her tax information (w-2's, 1098's, 1099's, etc). That way the tax preparer has enough information to make an informed decision.

If it does work out that your sister ends up filing, sounds like she might be able to use some of the free online tax filing programs available to lower income people.