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Squeeze through this new tax loophole for dependents

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in Small Business Tax

Don’t close the books on the 2005 tax year just yet.

Higher-income families who filed for an extension on their individual returns may still be able to slip through a newly discovered, unintended tax loophole to trim even more taxes. (Or, if the extra tax savings are worth it, you may want to file an amended return to secure those savings.)

Here’s the deal: Under the new tax-law definition of dependents, one of your older children may be able to claim a dependency exemption for your younger child. Since you probably will lose any tax advantage anyway because your adjusted gross income (AGI) is too high, whatever your family can gain is pure gravy.

To make this tax technique even juicier, your older child may qualify for tax credits that are traditionally reserved for less-affluent taxpayers.

Not surprisingly, lawmakers are up in arms over the tax-law glitch that opened up this gaping loophole. The president’s 2007 budget inc...(register to read more)

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