Avoiding family feud over college kid

Tax Talk

tax talk

February 13, 2007

Editor's note: Every Tuesday through the end of tax season, The Sun will run an edited transcript of Baltimoresun.com's weekly tax-advice column featuring three experts from the Hunt Valley accounting firm SC&H Group.

My husband and I reside in Texas. I have a daughter that attended a university in Virginia after graduating from high school in 2006 and resided in the dorm. She worked a [part-time] job (two, to be exact) for a short while in Virginia during the year 2006. My husband and I are unsure if we can claim her as a dependent since she lived in the dorm.

Also, my daughter's grandmother, who resides in a rental home in Virginia, wants to claim my daughter - who is 18 now - as a dependent when she didn't fund any of her college finances, health care coverage, college fees, etc. We are trying to handle this without creating a family feud.

- Kathryn, Texas

In order for a taxpayer to claim another as a dependent, that person must be:

a) Unmarried, or if married, does not file a joint return.

b) A U.S. citizen, resident or national or a resident of Canada or Mexico.

c) Either a qualifying child or a qualifying relative.

An individual would be considered a qualifying child if they meet all of the following requirements:

a) They are the taxpayer's child, sibling or any descendant.

b) They are under the age of 19, a full-time student under age 24 or any age if totally and permanently disabled.

c) They have lived with the taxpayer more than one-half of the year.

d) They have provided no more than one-half of their own support.

e) They cannot be claimed as a qualifying child by another taxpayer with higher priority under the tiebreaker rules.

It appears from your description that you and your daughter meet the above criteria and you would be entitled to a dependency exemption for your daughter. Residency at a college campus is ignored for the residency test. Under your facts, the grandmother would not be eligible to claim your daughter as a dependent.

I travel overnight for business to numerous cities. All of my meals with clients are reimbursed by my employer. However, there are times when I do not submit non-client meals for reimbursement. Am I eligible to deduct the per-diem rate established for the particular city, or do I need to deduct these meals as "unreimbursed business expenses"?

- Bert, Baltimore

If your employer reimburses you for non-client meals, seek such reimbursement. In the IRS' view, failure to seek available reimbursement results in a "per se" disallowance of the relevant deduction.

Assuming reimbursement for non-client meals isn't available, you can use either the per-diem rate or the actual expenses and include such amounts as unreimbursed business expenses on tax returns.

There are a few additional details to consider:

Only 50 percent of unreimbursed meal expenses may be deducted on your individual tax return, regardless of which option you use.

Because the per diem rate is equivalent to a daily allowance, all meal expenses incurred during a particular day must be taken into account in determining the amount claimed as a deduction.

In other words, each reimbursed client meal reduces the per diem amount left over for other meals during a particular day. Because of this limitation - and because the IRS may not allow use of the per diem method when other costs are reimbursed - it may be advisable to deduct actual costs incurred (assuming the deduction is not disallowed).

In order for meal expenses to be deductible, they must be incurred while away from home.

The IRS' long-established position is that the taxpayer's "home" is where he conducts business. An employee is "away from home" only when the trip lasts substantially longer than an ordinary day's work, the employee cannot reasonably be expected to make the trip without being released from duty, and the release from duty is with the employer's tacit or express acquiescence, or is required by regulations of a governmental agency regulating the activity involved.

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