Allowable Expenses by the Internal Revenue Service

I had a taxpayer ask me the other day whether or not they could claim all their children in their household as an expense/deduction. That truth is that when you have two people that co-mingle bank accounts, then the IRS will want to see the total household income and bank accounts from both individuals. The IRS will view girlfriend/boyfriend situations different than roomates that keep separate financials. In a situation like this, as long as you include a letter from you and your roomate stating that you pay the other rent/utilities, the Internal Revenue Service should not ask for further financial documentation from your roomate.

However, in terms of children, the IRS will allow you to claim the children you include on your tax return, but not if the other parent includes them. For example, I have been working on a resolution for a client that lives with his girlfriend,they have two children of their own, except for one (which is the mother's child from a separate relationship) child. Normally the mother claims the children, but in this case she relinquished their two children, allowing the father to claim the kids, so he would be able to claim three in the household for a larger living expense.

Eventhough the third child lives with them, he will be unable to claim them as living in the household because its technically his child. Utlimatelly, we are trying to lower the taxpayers monthly disposable income and get them into an affordable payment plan.

As you can see there are some very finite details in what is considered allowable/unallowable expenses (necessary living expenses) the IRS will consider when negotiating a resolution.