By Howard Abrams, PBS Tax & Bookkeeping
Q. I am a company driver. My girlfriend (and her two children) and I lived together in the same home for the entire tax year. I pay the entire cost of maintaining the home. She does not work and my income was $30,000. The children’s father is not eligible to claim them as dependents on his tax return. Can I claim the children as qualifying children on my tax return and then be eligible to file as head of household, claim the child tax credit, earned income tax credit and personal exemptions for each child?
A. You cannot claim the children as qualifying children on your tax return because they are not related to you. To be considered qualifying children, they must be your child, stepchild, eligible foster child or a descendant of any of them (such as a grandchild); or a brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendant of any of them (such as a niece or nephew). Note: Your girlfriend and the children may qualify as your dependents since they may meet the support test.
Q. Is there an age limit on claiming my child as a dependent?
A. In order to claim your child as a dependent, they must be under the age of 19 at the end of the year, or under the age 24 and a full-time student. If your child is totally and permanently disabled, there is no age limit.
Q. We have suffered through financial difficulties and subsequently our home was foreclosed on. We received Form 1099-C from the bank showing we are personally liable for the debt. The amount of debt discharged was $62,000. We figured we have a loss on the foreclosure. Is that loss deductible and will it offset part of the debt discharged?
A. The loss on a foreclosed residence is not deductible and cannot be used to offset debt discharged or cancellation of debt. The amount of debt discharged (cancellation of debt income) is considered ordinary income unless it can be excluded. Since the property that was foreclosed meets the definition of principal residence at the time of cancellation of debt, the amount discharged can be excluded under the qualified principal residence indebtedness exclusion.
Q. I am driving for someone who does not want to withhold payroll taxes. What should I do about taxes?
A. You will be responsible for the full brunt of the self-employment tax. Your only options are either to convince your employer to withhold taxes, to go find another company that will withhold taxes, or to pay estimated taxes on what you will owe. The way it stands now you are self-employed without the benefits of having your own business. If this is not your intent and you want to be a company driver, then you need to look elsewhere. LL
This article is written by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter-century. If you would like further information, please contact PBS at 800-697-5153 or visit their website at pbstax.com.
Please remember everyone's financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.