Ch 1: Exemptions for Individual Taxation

Question 2

What is the personal exemption for 2014?

Is it prorated for birth or death during the year?

Answer 2

$3,950

It is not prorated for birth or death during the year.

Question 3

Tests for claiming an exemption for a “qualifying child”?

Answer 3

Taxpayer is entitled to an exemption for each qualifying child and/or qualifying relative.

All requirements must be met.

CARES Qualifying Child:

1) Close relative (foster children count)
* adopted children, son, daughter, stepchildren, brother, sister, stepbrother or stepsister, or a descendant of any of these qualify
2) Age limit (19/24) and younger than the taxpayer (but no age limit for ones who are totally and permanently disabled) (24: a FT student is a student who attends school for at least part of each of 5 months; school must have FT faculty and have daytime program - school attendance at night does NOT qualify)
3) Residency and filing requirement (child must have the same principal place of abode as taxpayer for more than one half of the tax year)
4) Eliminate gross income test (exemption required)
* SUPORT test does not apply to a qualifying child
5) Support test changes (eliminated rule that taxpayer must pay more than half of support)

Question 4

Tests for claiming an exemption for a “qualifying relative”?

Answer 4

Taxpayer is entitled to an exemption for each qualifying child and or qualifying relative. Taxpayers can apply the “SUPORT” rules to claim a dependency exemption for a qualifying relative who does not satisfy the qualifying child requirements.

SUPOR or T

Qualifying Relative:

1) Support (over 50%) test (does not include scholarships, but does include social security and state welfare payments)
2) Under the personal exemption amount of (taxable) gross income test (a person may not be claimed unless the dependent’s taxable GI is < the exemption amount, $3,950)
* nontaxable income is okay, including social security, tax-exempt interest income (state & municipal), tax-exempt scholarships
4) Precludes dependent filing a MFJ tax return test

• a taxpayer will lose their exemption for a married dependent who files a joint return unless the joint return is filed solely for a refund of all taxes paid or withheld for the taxable year
• married children may be claimed as long as they don’t file MFJ (unless to claim refund) and they satisfy all other tests

5) Only citizens (residents of USA/Canada or Mexico) test
6) Relative test

• includes adopted children, foster children, and stepchildren
• foster parents and cousins must live with taxpayer the entire year
• or- (6 or 7)
  7) Taxpayer lives with individual (if nonrelative) for the whole year test
• a nonrelative member of a household, may be claimed as a dependent, provided the taxpayer’s relationship wiht that person does not violate local law

Question 5

Children of Divorced Parents: Who can claim them as a dependent for the exemption?

Answer 5

• the parent who has custody for the greater part of the year takes exemption
  
  • time test, does not matter if the parent provided more than half of the support
• if equal custody, then the parent with the higher AGI takes the exemption

Question 6

What are the requirements for a multiple support agreement?

Answer 6

1) 2 or more people together provide more than 50% of support, but no one contributes more than 50%.
* ex: one taxpayer contributes 48% and the other contributes 43%
2) To claim the exemption, must provide more than 10% of support, and meet the other dependency tests.
3) A multiple support declaration, Form 2120, must be filed.

Question 7

If you are old (age 65 or older), or blind, what may you claim?

Answer 7

There is an increased standard deduction, NOT an additional exemption.