Tax Returns, Grandparents & Yes, Now I Am An Expert

I have a different disclaimer for this entry. Instead of my usual spiel about not being a lawyer or a social worker, just a grandparent raising grandchildren, I instead will say: While I am a trained tax preparer, please realize that any advice offered in this entry is not tailored to your individual circumstances. For more information, consult the IRS or a local individual trained in tax preparation, or your tax software.

Awhile back, my dearly departed aunt (DDA) and I decided to take tax preparation classes at a chain tax preparation company. My DDA worked many years at the IRS, and was interested to see what it was like on the other side. I was sick of being confused by Publication 17: Your Federal Income Tax, known as the Bible of the Tax Code. For a ridiculous entry fee, we had seasoned tax preparation specialists teach us just how the returns worked, what was legal to ask, what was not unless volunteered, and so much more.

So, this is not just information I've researched. This is stuff I know! Tax prep is a nerdish hobby I will admit. Yes, I am the first on the block to support the flat tax as well as the fair tax when either comes up. I still love preparing income tax returns, on my own, for selected clients or as a volunteer.

Here are my tips for grandparents raising grandchildren and other relatives who might have a spare set of related kids in the house:

1.) Get the kids' social security numbers. You will need them in order to claim the kids on your 1040 or 1040A. Look on old paperwork left behind. Go to the social security office. Check out department of human services paperwork. Ask the school. Give the IRS no cause to reject your return.

2.) File as soon as possible. Don't wait, for a lot of reasons. One of the biggest reasons is that often, but not always, if your adult child beats you to claiming the kids, the IRS is going to want to know why you are claiming them as well. At best, this will hold up your return; at worst, the IRS will not give you the return amount you filed, and ask a lot of questions. Save yourself the aggravation. If you are waiting on a W-2, simply go look at your last paycheck statement or stub. All your information is there. If you're using tax software and filing electronically, the IRS doesn't want to see your W-2. In any event, the IRS receives a copy of your W-2 from your employer along with all the copies you send them. Besides, the sooner you file, the sooner you get your cash.

3.) If the kids lived with you more than either of their parents in 2008, claim them as dependents, but file as quickly as possible. The IRS might be an agency of the United States government, but the IRS operates under very different rules and regs. Single tax payers are only allowed to claim $8,950 in standard deduction if under 65 this year, and $10,300 if over 65. A person with kids to raise is known as a Head of Household, and claims $11,500 if under 65, and $12,850 if over 65. If you aren't married, it makes sense to be one of those heads of households.
How? If the child or children lived with you more than one-half of the year, meaning 6 months and one day; and you provided more than half of the child or children's support (not including assistance from the department of human services, food stamps, TANF and the like); then you are allowed to take the child or children as your dependents. You're the one raising these kids. Even if you are married, claim the children as dependents and claim them early. Let your adult child go through the nonsense of explaining to the IRS why you are claiming them.
Some preparers will disagree with me. Let them write their own blog.

4.) Don't forget the EIC credit, child care expense credit, and the child tax credit. IF you earned money this year through work (earned income); and IF have an adjusted gross income (AGI) of less than $33, 995 if single (head of household, qualified widow or widower) with 1 qualifying child, or $36,995 if you are married with 1 qualifying child; and IF the qualifying child is your child, foster child, sibling, half-sibling, or a descendant of any of them such as a grandchild or niece; and IF the child is under 19, a full time student under 24, or disabled as of 2008; THEN you may claim an Earned Income Credit, or EIC. If you have a second qualifying child, the AGI amount increases to $38,646 and $41,646 if married filing jointly. The government really, really wants you to claim an EIC if you qualify. They spend millions of dollars advertising that the EIC exists. An EIC credit can be quite substantial, thousands of dollars you will receive even if you didn't pay that much in federal withholding from your paychecks.
Working and paying for day care or after school care? Look into the child care expense credit? Make under $75,000 if in single mode, or $110,000 if married filing jointly? Is the child in your care under 17 and in the US legally? See if you qualify for the child tax credit. More than 3 children in your care? Try the additional child tax credit. If you don't qualify even after you completed the forms, at least you tried.

5.) If you are smart enough to have an email account and surf the Internet, and you don't believe the Nigerian government has exiled an official who wants to share his wealth with you, get tax software. File electronically if you are not barred from doing so. I'll let you in on a secret. The tax preparation chains work on commission. For every piece of paper the preparer generates, real paper or digital paper, you pay a fee. It doesn't matter if the the piece of paper is included in the return transmitted or mailed to the IRS or not. Worksheet generated? You pay for it. Form generated? You pay for it. And the preparer gets a percentage of your total tax prep bill.
If you have no trouble putting mouse to icon, and have a steady stream of email daily, you should have no trouble completing a relatively uncomplicated return, whether with purchased software or on the web through a site. It really doesn't matter which company or software or site.
A very few people cannot file electronically. If you are one of these people, make sure you print your entire return. Make yourself a copy. Separate your W-2s down the perforated lines, so you have a copy. If you have any documents that need to be included with the 1040 or 1040A, be sure to make copies for yourself. Mail the completed 1040 with its attending documentation via return receipt requested mail (the green post card that comes back when the IRS has received your packed envelope).

6.) If you don't feel confident with the computer and you don't have a complicated return, then try preparing your own or having somebody in the house who can read at the sixth grade level complete it for you. Teens can be really helpful when it comes to computers. It would be excellent practice for them to learn to complete a tax return online. The two of you could even sit down with a pencil, a handheld calculator, and fill out the return by hand.

7.) If you are bad with computers, and are mathematically challenged, or have a complicated return, either go to a paid tax preparer or one of free tax preparation centers offered by the IRS, churches, and civic groups. Usually, a complicated return means you generate money during the year, either by work or investments (congratulations by the way). It could mean you had a bad accident, or have gone through the mill in so many ways. In any event, if this is you, go ahead and use a good tax preparer, or even an accountant or tax attorney.
Not so wealthy but in a complicated situation? Find a tax clinic, tax payer assistance program, or preparer volunteers. Start at no less than the IRS itself. If you are a member of a church, check there (even if you aren't a member, most churches who have the program open their doors to anybody who qualifies). Check out AARP.Almost every civic group and a few private concerns have volunteers who would like nothing better than to assist you in filing your return.