Chapter 4 Flashcards
What are the 4 tests for Qualifying Child?
- Support Test
- Relationship Test
- Age Test
- Residence Test (Abode Test)
What are the requirements under the SUPPORT test in QC?
- Child must NOT be self-supporting
(meaning that THE CHILD must not provide over 1/2 of their own support) - if child full-time student scholarship does NOT count as support as long as–> they’re a son, daughter, step-son/daughter, eligible foster
What are the requirements under the RELATIONSHIP test in QC?
- taxpayer’s child
- includes: adopted child, step-child, eligible foster
- includes brother, sister, or half brother/sister
- step brother/sister
- includes a descendant of any of the above parties.
- Ancestors and in-laws NOT included (e.g uncle, cousin)
What are the requirements under the AGE test in QC?
- must be UNDER 19 or UNDER 24 (if student)
- Notes: student must be enrolled >/= 5 months in a year,
- Age does NOT apply to a child who is disabled any part of the year,
- individual CANNOT be older than the taxpayer claiming them as QC
What are the requirements under the RESIDENCE test in QC?
- MUST LIVE with the taxpayer for OVER 1/2 of the year
(temp. absences are excused, e.g. student)
What are the 3 tests for Qualifying Relative?
- Support Test
- Relationship or Member of Household Test
- Gross Income Test
What are the requirements under the SUPPORT test in QR?
- OVER 1/2 of the support MUST be provided by the taxpayer (unless multi support exception met)
- if child full-time student scholarship does NOT count as support as long as–> they’re a son, daughter, step-son/daughter, eligible foster
What are the requirements under the RELATIONSHIP test in QR?
- includes: all relationships allowed under QC,
- ancestors of the taxpayer (parents and grandparents)
- uncles and aunts
- CERATIN in-laws (son/daughter, father/mother, brother/sister)
- step father/mother
- cousins do NOT qualify under this test
What are the requirements under the MOH test in QR?
- unrelated parties who LIVE WITH the taxpayer for the ENTIRE year
- (e.g. family friend)
- cousin CAN qualify under this test
- Notes: NOT available for anyone who WAS a spouse of the taxpayer ANY PART of the year,
- Ex-spouse may qualify in a year following the divorce,
- In-law status continues to exist and survives a divorce
What are the requirements under the GROSS INCOME test in QR?
- the dependent’s gross income must be LESS THAN $5,050 for tax year 2024
- Notes: Gross income is determined by the income that is TAXABLE
- For scholarships, INCLUDE taxable amounts (amnts used for room and board) and EXCLUDE non-taxable amnts (amounts used for books, fees, and tuition)
What are some examples of EXCLUDED income?
- Interest income from municipal bonds
- Gifts received
- Inheritances received
- Life insurance proceeds received as the named beneficiary
- Gain on sale of personal residence
What are ‘FOR” AGI deductions?
- Alimony paid (ONLY for PRE-2019 divorce decree)
- Sole-proprietor business expenses
- Rental expenses (Schedule E)
- Net capital losses (LIMITED to $3,000 per year)
- Contributions to Traditional IRA retirement account
- Student loan interest paid
What are the 2 categories in ‘FROM” AGI deductions?
- Greater of standard deduction OR itemized deductions
- Deduction for qualified business income “QBI”
(Qualified business income × 20%)
What are some examples of common ITEMIZED deductions?
- INTEREST EXPENSE: mortgage interest expense and investment interest
expense - Charitable contributions
- Medical and dental expenses, in EXCESS of the 7.5% floor LIMITATION
- TAXES: State tax, real estate tax, personal property taxes (MAX of $10,000 total)
Child Tax Credit
- $2,000 for each qualifying child UNDER AGE 17 at the end of the year.
- $500 for each other qualifying dependent
What is the MARGINAL tax rate?
Tax / taxable income
What is the AVERAGE tax rate?
Total tax / taxable income
What is the EFFECTIVE tax rate?
Total tax / total income
What are the 5 criteria used to evaluate different tax systems?
- Sufficiency
- Equity
- Certainty
- Convenience
- Economy
What are the 3 types of audits?
- Correspondence Examinations
- Office Examinations
- Field Examinations
List the five different filing statuses.
- Married filing jointly (MFJ)
- Married filing separately (MFS)
- Qualifying surviving spouse (QSS)
- Single
- Head of household (HOH)
Why is choosing the correct filing status important?
It affects the tax rate brackets used, the amount of the standard deduction, and other items.
What is required to file as Married Filing Jointly (MFJ)?
Must be married AS OF the last day of the year.
What happens if one spouse dies during the year regarding MFJ?
The remaining spouse is allowed to file as MFJ with the deceased spouse for the tax year OF the death.
Under what condition can a remaining spouse file MFJ with a new spouse?
If the remaining spouse remarries BEFORE the year’s end.
What is a disadvantage of Married Filing Jointly (MFJ)?
Joint and several liability for tax.
What are the implications of filing Married Filing Separately (MFS)?
- Higher tax rates
- May lose other tax benefits
- Must BOTH itemize deductions if one does.
What is the tax status of a Qualifying Surviving Spouse (QSS)?
SAME tax brackets as married filing jointly.
How long can one file as a Qualifying Surviving Spouse (QSS)?
For 2 years AFTER the year of spouse’s death.
What is the marital status requirement for the Single filing status?
Taxpayer must be UNMARRIED and does NOT qualify for another filing status.
What defines a Head of Household (HOH)?
Must pay MORE THAN 1/2 the costs of maintaining a HOUSEHOLD for a QUALIFYING person.
What is a ‘qualifying person’ in the context of Head of Household?
- Qualifying child
- Qualifying relative (MUST meet RELATIONSHIP test)
What are the specific rules for a qualifying relative who is the taxpayer’s parent?
- Parent NEED NOT live with taxpayer
- Taxpayer MUST pay > ½ cost of maintaining separate household
- Parent MUST qualify as taxpayer’s dependent.
What conditions must be met for a taxpayer to be considered an ‘abandoned spouse’?
- STILL married at the end of the tax year
- Does NOT file a joint tax return
- Pays > ½ the cost of maintaining a HOUSEHOLD for a qualifying CHILD
- Lived APART from the other spouse for the LAST 6 months of the year.
