Question – My adult son is in failing health and has come to live with us so we can care for him. Since he is part of our household now, can we claim him as a dependent?

Answer – It depends. There are 5 criteria that need to be satisfied before anyone can be properly claimed as a dependent.
They are: relationship, citizenship or residency, marital status, age and ‘qualifying support.’ He obviously meets the first two, but if he’s married and being included on another tax return, you can’t claim him. The last one is the tough one to meet for an adult dependent. But it is possible, if his income or support payments being received or provided by another person (pension, social security, disability benefits, child or spousal support, etc.) is small or he has none, then the ‘support’ you are providing may be sufficient. Support is his share of the cost of food, clothing, shelter, transportation and medical care. Figure the amount you spent last year for those categories of cost, divided by the number of people in your household, = his share.  It must be more than ½ of his separate income or support described above. Taxability of his ‘income’ is not a factor.  Failure to make sure he’s not being claimed by anyone else will likely result in both returns being audited!  Multiple support agreements are common between children caring for aging or disabled parents, or any ‘supported’ adult.

Question – I heard recently that IRS expects me to pay income tax on the stuff or even the services I receive when I exchange something with my neighbor or help her in return for her helping me! How can that be, since no money changes hands?

Answer – Congress established our system of taxation by designing it around transfer activity. Basically, we have to pay tax anytime there is an agreed-upon transfer/exchange between parties – goods for goods or for services. The parties agree on the fairness of the exchange of value.  It is up to each to assign a monetary amount to the transaction and yes, to report it as part of their income subject to tax. The occasional transaction value would be reported on the ‘Other income’ line on page 1 of form 1040. If a business does exchanges, the income received is also potentially subject to self-employment tax! A business owner reports bartered benefit value on Schedule C as Other Income. And the IRS finds out about any ‘bartering’ activity by asking you directly at the very beginning of any audit.  Rules about bartering are clearly a part of the Internal Revenue Code!

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