Individual Taxation: Exemptions Flashcards
What is the general outline of Form 1040?
Gross Income - Adjustments for Gross Income = Adjusted Gross Income (AGI) - Standard Deductions or Itemized Deductions (greater of the two) - Exemptions = Taxable Income x Tax Rate = Tentative Tax Liability - Credits \+ Additional Taxes - Payments = Balance Due or Overpaid
What are the different kinds of personal exemptions one can have?
(1) individual (can be called “personal”)
(2) spousal
(3) dependency
Each exemption is $3,900 for 2013
When can a taxpayer claim an individual exemption?
If no one else can claim him as a dependent
How does a spousal exemption differ from a dependency exemption?
The spousal exemption is simply grounded in the marriage, not in the actual existence of financial support, so it does not need to pass the support test
How do death and divorce affect the spousal exemption?
A taxpayer can still claim a spousal exemption in the year the spouse died (if not remarried) – but if divorced at year-end, neither can claim it
Can a taxpayer claim an exemption for his spouse if he is filing separately rather than jointly?
No, unless the spouse is a dependent without a gross income
What are the two different kinds of dependents?
Qualifying children and qualifying relatives
The qualifications for each are not the same – and a person can sometimes qualify for both
What is the first requirement for a child to qualify for an exemption?
Must be in a proper relationship with the taxpayer – a child, stepchild, sibling, half-sibling, or descendant of any of those
Foster children and adopted children count too
What is the second requirement for a child to qualify for an exemption?
The child must have the same principal residence as the taxpayer for at least six months
The requirement is still fulfilled in cases of divorce and temporary absences due to illness, vacation, education, military, etc.
What is the third requirement for a child to qualify for an exemption?
The child must be…
- younger than the taxpayer and
- either under age 19, a full-time student under age 24, or permanently disabled
Full-time enrollment = five calendar months
What is the fourth requirement for a child to qualify for an exemption?
The child does not provide over 50% of his own support – and this excludes scholarships
What is the fifth requirement for a child to qualify for an exemption?
The child did not file a joint return
Exception: spouses who are dependents of a third person can sometimes file a joint return if it is filed solely for a refund (not to pay taxes)
What is the sixth requirement for a child to qualify for an exemption?
The child must be a U.S. citizen/national or be a resident of North America
What are tiebreaker rules regarding a qualifying child?
A child might be a qualifying child for more than one person, so there are tiebreaker rules for who gets to claim the exemption:
(1) the parent wins
(2) if neither are parents, then whoever has highest AGI
(3) if both parents, then whoever the child lived with longer
(4) if (3) is equal, then parent with highest AGI
What does the Emergency Economic Stabilization Act of 2008 (EESA) permit?
A taxpayer with a higher AGI than the parents of a child can claim that child as an exemption if neither parent does
His AGI must be higher than the higher individual AGI of the parents, not their AGIs taken cumulatively
