Determining who can claim a child as a dependent isn’t always straightforward, particularly when parents are unmarried, separated or divorced. The IRS provides rules that define the custodial parent and outline how tax benefits are allocated. However, real-life situations often introduce complexities that can lead to confusion. Tie-breaker rules are designed to resolve disputes, but mistakes can result in rejected returns or trigger audits.

We’re here to break down these complexities and present diverse case studies that will help you navigate dependency claims in a variety of scenarios.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: What is the definition of “totally and permanently disabled” for federal tax purposes?

A: For federal tax purposes, an individual is considered totally and permanently disabled if they cannot engage in any substantial gainful activity due to a physical or mental impairment, and a physician certifies that the impairment:

• Has lasted or is expected to last at least 12 continuous months, or
• Is expected to result in death

This definition, from §22(e)(3), applies to various tax provisions, including the Credit for the Elderly or Disabled (§22) and determining dependency status for a disabled child under §152(c)(3).

Note: While “substantial gainful activity” isn’t specifically defined in the Code, it generally follows SSA and Treasury guidance – meaning the ability to perform significant work for pay. While Social Security disability determinations (SSDI/SSI) may support a taxpayer’s claim, they are not determinative and are evaluated alongside all available medical evidence.

Q: Does the gross income test amount ($5,050) include Social Security benefits if they are not taxable to the individual?

A: No, nontaxable Social Security benefits are not included in the gross income test.

For 2024, the gross income threshold is $5,050 (Rev. Proc. 2023-34), and for 2025, it increases to $5,200 (Rev. Proc. 2024-40). The gross income test disregards tax-exempt income – such as certain scholarships, the nontaxable portion of Social Security benefits and specific earnings by disabled individuals from sheltered workshops [§152(d)(4)].

However, while nontaxable income (e.g., nontaxable Social Security benefits) is excluded from the gross income test, it is considered when determining whether the individual provided more than one-half of their own support, if that income was actually used for their support [Reg. §1.152-1(a)(2); Rev. Rul. 71-468].

Q: Does a disabled adult child qualify for the $2,000 child tax credit (CTC)?

A: No, a disabled adult child does not qualify for the $2,000 CTC. Under §24(c)(1), a “qualifying child” for purposes of the CTC must:

• Be under age 17 at the end of the tax year
• Be a dependent of the taxpayer
• Be a U.S. citizen, national, or resident alien
• Have lived with the taxpayer for more than half the year

Even if the child is permanently and totally disabled, once they reach age 17, they are no longer eligible for the child tax credit. However, you may be able to claim the $500 credit for other dependents under §24(h)(4) if the adult disabled child qualifies as a dependent under §152. This credit is available for qualifying relatives and other dependents who don’t meet the age requirement for the CTC.

Q: What happens when a judge, in a divorce decree, states that each parent can claim the child in alternating years?

A: Regardless of any provisions in a divorce decree, the dependency exemption is governed by federal tax law, not state court orders. For post-2008 agreements, a properly executed Form 8332 (or a conforming written declaration per Treas. Reg. §1.152-4(e)) is required for the noncustodial parent to claim the child. This release must be attached to the noncustodial parent’s return for any year the dependency claim is being transferred.

Importantly, language in a divorce decree or separation agreement is not sufficient on its own unless it was executed before 2009 and meets the prior rules. For post-2008 agreements, only a properly executed Form 8332 (or conforming statement) satisfies the IRS requirement. Failure to obtain and attach the signed release will generally result in the IRS denying the noncustodial parent’s claim, regardless of what the court order says.

To learn more about qualifying dependent case studies, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

Question: Ron is a sole proprietor. Ron sold his accounting practice in 2025. The sale included office equipment, client files and goodwill self-created by the business based on Ron’s strong customer relationships with his current clients. In the sales agreement, Ron received $150,000 specifically allocated to goodwill. Ron wants to know if this amount qualifies for long-term capital gain treatment on his tax return. Is the gain on the sale of self-created goodwill considered a capital gain?

Answer: Yes. Under §1245, amortizable §197 intangibles (like purchased goodwill, customer lists, trademarks etc.) are classified as §1245 property. This means they are subject to potential depreciation recapture. Any gain on the sale or disposition of the property may be recharacterized as ordinary income to the extent of prior amortization deductions.

However, self-created goodwill and going concern value typically do not trigger §1245 recapture. Instead, the gain from selling these intangibles is generally treated as capital gain if held for over a year. This treatment is supported by §197(c)(2), which provides the exclusion of self-created intangibles as amortizable §197 intangibles and §197(f)(1), which denies depreciation recapture on goodwill and going concern value that was not acquired in a taxable transaction.

Since Ron self-created the goodwill as part of his trade or business and sold it as part of the overall sale, the gain is reported as a §1221 gain, which is taxed as a long-term capital gain.

As National Small Business Week approaches, we’re shining a spotlight on the vibrant, hardworking tax professionals who power the NATP community. From big-city offices buzzing with activity to cozy neighborhood storefronts where everyone knows your name, our members are the trusted partners clients rely on year-round.

To celebrate, we asked our members to pull back the curtain and share what makes their offices truly special. The stories that came in highlight everything from niche specialties and one-of-a-kind client relationships to deep community roots and entrepreneurial spirit.

Get ready to meet the heart and hustle behind NATP’s small business champions and help us cheer them on during this week of recognition and appreciation!

Here’s a look at some inspiring business owners and the stories behind their businesses:

Conner Tax Service – Englewood, CO

Owner: Eliza Conner, EA

With over 20 years of experience, Connor Tax Service helps entrepreneurs achieve financial freedom. Through tax strategy sessions, financial coaching, YouTube and books, Conner breaks down complex strategies into simple, actionable steps.

Chaka Dinkins Bookkeeping Services – Oak Park, IL

Owner: Chaka Dinkins

Dinkins is an experienced bookkeeper and tax professional who serves individuals and small businesses with bookkeeping, tax preparation and business services. The goal is to help clients stay compliant with tax and accounting regulations, reducing the stress that often comes with meeting these obligations.

Hjortness CPAs, SC – Neenah, WI

Owner: Genaro S. Cardaropoli, CPA

Originally starting with his own book of business, Cardaropoli joined Hjortness CPAs, SC five years ago and became president. He now works to expand the business growth and level of service offered at the firm with more strategic tax advice.

Wolf Financial Group LLC – North Canton, OH

Owner: Tom Wolf, CPA

Wolf Financial Group LLC, licensed in Ohio, Arizona and Florida, provides a full suite of tax and financial services for individuals and businesses. Its offerings include tax preparation and planning, small business accounting, payroll, part-time CFO support and QuickBooks setup. Staff also assist with personal financial planning, estate planning and elder care. The firm’s mission is to simplify financial management so clients can focus on what matters most.

BIM Financial Services LLC – Kaplan, LA

Owner: Tangie Mouton

BIM Financial Services LLC is a nationwide firm offering tax preparation, bookkeeping, payroll, credit repair, notary services and business formation. With a CPA licensed since before 1970 and a tax professional with over 50 years of experience, the firm also serves as a service bureau providing tax software and training. BIM is dedicated to delivering affordable, respectful support to every client.

Tax Diva Services – Ava, MO

Owner: Deana L. Parsick, AFSP

Starting with 20 clients and now serving over 2,000, Tax Diva Services specializes in all types of returns, accounting and payroll.

All Taxes Done Right – Columbus, OH

Owner: Carmen B., EA

After spending several years working for different companies, Carmen felt that life after the military had finally settled enough to take the leap. Although getting started has been somewhat challenging, she remains hopeful that the future will be bright.

Upton Tax Service – Afton, OK

Owner: Terra L. Neal, AFSP

As a fourth-generation tax preparer, Neal specializes in farm and business tax returns.

Bruce R. Paglia – Needham, MA

Owner: Bruce R. Paglia

Paglia launched his business on his parents’ dining room table, later moving to a home office and expanding to a second location in 1984. After his son’s passing 12 years ago, he closed the second office but continues to serve many longtime clients. Now focused on Schedule business rentals, farm and basic individual returns, Paglia also manages family stock portfolios, writes financial commentary and mentors young people on building financial freedom.

Sanchez Income Tax & Translation Services, LLC

Owner: Zoraida Sanchez, AFSP

Sanchez operates an e-file tax preparation business and is an authorized ITIN acceptance agent. The business also offers income tax classes, consulting, business registrations and licensing, bookkeeping and sales tax reporting. Additional services include translations, notarizations, notary signings, immigration assistance and more.

Steponkus Tax Service – Milton, WI

Owner: Barbara Steponkus, EA

Started in 1992 with 62 clients, Steponkus Tax Service has greatly expanded with referrals and other business buyouts.

Narron CPA – Hampstead, NC

Owner: Robin Narron

Narron CPA is a small firm focused on small business clients. They advise their clients as well as work with them on their accounting and tax needs.

The Tax Place – Memphis, TN

Owner: Pamela P. Pickett

After 15 years working for another business, Pickett ventured out on her own five years ago. As an “older, widowed woman,” it was an intimidating step, but the risk paid off. Today, her business is thriving in her rural community.

Belmoore Financial Solutions – France

Owner: Lisa Belmonte

Belmoore Financial Solutions is committed to making tax preparation as stress-free as possible through personalized, one-on-one service. With a knowledgeable team and expertise in individual, small business and rental taxes, Belmonte provides customized solutions tailored to each client’s needs. The business focuses on customer service and up-to-date tax knowledge to ensure the best possible outcomes.

LBE Consulting PLLC

Owner: Lisa Franklin

LBE Consulting PLLC has provided high-quality tax and accounting services since 2009, with a strong commitment to educating and empowering taxpayers. The firm supports the community through speaking engagements, volunteer programs like VITA and the ABA Tax Section, and LITC clinics. Focused on mentorship and continuous growth, LBE Consulting PLLC leads with education at every opportunity.

JFK Consultancy – Plano, TX

Owner: Joseph Kerner

Kerner recently relocated to Plano, TX, after spending most of his career in the Columbus, Ohio area. An enrolled agent, he is now rebuilding his client base while living with his son, Michael.

ARS Accounting LLC – Hanover, PA

Owner: Ageana Spurlock, EA

Spurlock founded the business after 13 years working for small CPA firms, where she saw clients frustrated by late filings and lack of personal attention. Wanting to change the narrative, Spurlock built her firm to offer small businesses personalized, timely service – creating a trusted space where clients feel supported and can focus on what they do best.

Eugenia A. Graber – Kissimmee, FL

Owner: Eugenia A. Graber, RTRP

Graber started the business in 1990 after 10 years with H&R Block, building a client base of over 400 by 2001. After relocating to Florida, most clients were transitioned to another preparer, though many chose to stay. In recent years, Graber has downsized to about 70 clients and plans to retire next year.

Penny Pinch Tax LLC

Owner: Linda Schweitzer, AFSP

Penny Pinch Tax LLC is a queer-owned, trans-affirming local business dedicated to making tax filing less stressful. They prioritize personalized service, offering thorough reviews of each return and helping clients plan for future changes. This year, they launched the “Take a Penny, Leave a Penny” program, partnering with local nonprofits to provide tax assistance to those in need. Penny Pinch Tax LLC focuses on individual and sole proprietor returns, as well as nonprofit 990 preparation and bookkeeping.

SW Bookkeeping

Owner: Susan Wilson

Wilson began preparing taxes as a side gig for friends and family, which quickly grew into a thriving business. After retiring from the state five years ago, Wilson expanded the practice from 60 to over 300 tax clients and from five to more than 50 accounting clients, now serving four towns. With the help of seven part-time employees, mostly family, Wilson hopes to eventually pass the business on to a granddaughter and is grateful for the unexpected growth and success.

Small Business and Accounting Solutions of Oklahoma, LLC – Ponca City, OK

Owner: Doreen H. Abbott

As a small, woman-owned company, Abbot leads her firm in providing the bookkeeping, payroll and tax services needed by other small businesses.

APEX Tax & Small Business Advisors – Fort Wayne, IN

Owner: Barbara A. Mendez

APEX Tax & Small Business Advisors is a local, female- and family-operated firm focused on making tax, bookkeeping, and business advisory services accessible and welcoming. Founded by Barbara Mendez in 2016, APEX quickly tripled in size, expanding its team with family and long-time clients. Beyond tax preparation, the firm supports clients with tax planning, accounting setup and small business networking. APEX is deeply committed to community impact, donating to client-chosen charities and helping women and minorities achieve business ownership.

Parkers Prairie Tax Service – Ottertail, MN

Owner: Jessica Christensen, EA

Parkers Prairie Tax Service offers tax preparation, tax advisory, and payroll services to support individuals and small businesses in achieving financial stability.

Small Business Accounting Services

Owner: Lorraine (Lorry) Sorgman, EA, MST, USTCP

SBAS, LTD operates two businesses: Small Business Accounting Services, founded in 1983, and Back Tax Consulting, launched in 1999 to help taxpayers with delinquent tax issues. Over the years, SBAS has maintained a strong track record with offers in compromise, emphasizing that success depends on knowing the process and presenting a simple, clear case. Sorgman emphasizes how each taxpayer’s situation is unique, making representation a challenging and rewarding field.

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At NATP, we deeply value the contributions of small businesses as they bring diverse perspectives, real-world experience and a personal commitment to excellence that elevate our entire membership. These stories are just a glimpse into the hardworking individuals who make up our membership and the tax community we know and love.