Personal Finance (Not Investing) • Re: Realize gain and incur tax on gifted stock?

Did your daughter earn any “scholarships” - not sure, how scholarships account/help toward “half the support” requirement (ie, would a said scholarship reduce the full-year cost of supporting herself !? not sure)

Also, never tried (yet) to figure the difference: tax “dependent” Vs. “not-dependent” for full time-student (ages 19-24) kid. Would AI help here !? But, i wouldn’t bet one AI for filing taxes

She has no scholarships.

I ran this by ChatGPT (after informing ChatGPT that my daughter is 23, full time student, and earned $18k):

Is it true that if I claim her as a dependent her standard deduction gets reduced to $3,500?
ChatGPT said:
ChatGPT
Yes, it's partially true—but there's a key distinction to understand about how your daughter’s standard deduction works when you claim her as a dependent.

Standard Deduction for Dependents
When you claim your daughter as a dependent, it does not automatically reduce her standard deduction to $3,500 unless specific criteria are met. Here's how it works:

If Your Daughter is a Dependent:

For 2024, the standard deduction for a single filer is $13,850.
However, if you claim her as a dependent, her standard deduction is reduced if her earned income is greater than her standard deduction. In that case, the reduction is equal to the amount of earned income plus $400 (up to the maximum standard deduction limit of $13,850).
Specifically, here's the breakdown:

If your daughter’s earned income is $18,000 (which it is), her standard deduction will be reduced as follows:
Her standard deduction is the greater of her earned income ($18,000) plus $400, or the $13,850 limit.
So, in this case, her standard deduction would be $18,000 + $400 = $18,400. However, since the maximum standard deduction for a single filer is $13,850, her standard deduction will remain at the maximum amount of $13,850.
So, the $3,500 is Not Accurate:
The figure $3,500 applies to a very specific situation and is not what happens when you claim your daughter as a dependent. Here's why:

If your daughter has no earned income, then her standard deduction is reduced to $1,250 or her earned income, whichever is greater (but not more than the standard deduction for a single filer, $13,850).

In your daughter's case (with $18,000 of earned income), her standard deduction will remain at $13,850, the maximum allowable for a single filer.

Summary of the Key Points:
If you claim her as a dependent, your daughter's standard deduction will not be reduced to $3,500.
Her standard deduction will remain $13,850, since her earned income ($18,000) plus the $400 exceeds the $13,850 standard deduction limit for a single filer.
The $3,500 figure is not relevant in this case. However, if your daughter had very low earned income (e.g., $2,000), then her standard deduction would be closer to the $3,500 figure, but that's not your situation.
So, to directly answer your question: No, her standard deduction will not be reduced to $3,500. It will remain the full $13,850, as her earned income exceeds the amount needed to lower it.

Comparison with Claiming Her as a Dependent:
If you claim her as a dependent, her taxes would be $1,942.82, which is the same as if she were not a dependent (based on this calculation).
The key difference in the federal tax calculation is that when not claimed as a dependent, she would be able to take the full standard deduction ($13,850), but her total tax liability remains the same in this case since her taxable income is low.
So, in this case, whether you claim her or not, her total tax liability would be the same, $1,942.82.

However, if her income were higher, the difference between claiming her or not claiming her could become more significant, especially if your taxable income impacted any credits or deductions you were eligible for.

Statistics: Posted by josephny — Sat Dec 14, 2024 7:48 am