R1 - Individual Tax - Income

Question 1

1. Filing Status - “Qualifying Widower”

Answer 1

1. The taxpayer’s spouse died in one of the two previous years and the taxpayer did not remarry in the current tax year;
2. The taxpayer has a child who can claimed as a dependent;
3. This child lived in the taxpayer’s home for all of the current tax year.
4. The taxpayer paid over half the cost of keeping up a home for the child.
5. the taxpayer could have filled a joint return in the year the spouse died.

Question 2

5 filing status

Answer 2

1. Single (the default, if not qualify for other filing classes)
   - use end-of-year test (12/31 decision)
   or
   - legally separated
2. Married filing joint - end of year test (12/31 decision)
   married or married but living apart (not legally separated)
   *married during the year -> file joint -> 12/31 test
   * if one spouse dies during the year, a joint return may be filed -> only for this year
3. Married filing separately
   married but only one spouse has income for the year.
4. Qualifying Window with dependent child
   * two years after spouse death unless remarries.
   * the surviving spouse must maintain a household was the PRINCIPAL place of child for the WHOLE taxable year.
5. House of Household (to pay lower taxes)
   must meet the following (ALL):
6. not married, legally separated, or is married byt lived apart from spouse for last 6 months.
7. not a quailfying window
8. non-resident alien
9. maintain his/her home for more than half the a taxable year. the principal residence of -> son/daughter (blood or adopted) have to live with taxpayer; taxpayer’s father or mother (dont have to live with taxpayer, but taxpayer have to maintain HALF of the cost); Dependent Relatives(brothers, sisters, aunts) (must live with taxpayers) ->cousins, foster parents, unrelated dependent are not quailfied.

Question 3

Filling Status - I. Filing - Requirement of filing

Answer 3

1. general rule
   must file a return if his income is equal or greater than the sum of:
   personal exemption + regular standard deduction + additional stanard deduction

Income >= (personal exemption+ regular standard deduction+ additional standard deduction amount) -> must file!

2. Exceptions
   Must also file if
   a. self empolyment income >$400
3. cliamed as dependent on another taxpayer’s return, having unearned income/gross income>$1,000 ->must file
4. if receive advance payments of earned income credit

Question 4

Exemptions - 1. Personal Exemptions

Answer 4

Personal Exemptions
person claimed as dependent on another’s tax return will not be allowed a personal exemption on their own returns.

Married Taxpayers
1. each spouse receives personal exemption
2. Spouse as personal exemption on a separate return
however, a married taxpayer filing “maried sparated” can file the spoouse’s personal exemption. must meet the following -
a. taxpayer’s spouse no income
b. spouse was not clianed as a dependent of another taxpayer.

Question 5

Exemptions - 1. Personal Exemptions

Answer 5

Personal Exemptions
person claimed as dependent on another’s tax return will not be allowed a personal exemption on their own returns.

Married Taxpayers

1. each spouse receives personal exemption
2. Spouse as personal exemption on a separate return

Question 6

Exemptions - II. Dependency Exemptions

Answer 6

Quailifying Child or Qualifying Relative

1. Qualifying Child (CARES)
   (C) Close Relative - must be taxpayer’s son or legally adopted and frost child.
   (A) Age Limit - younger than 19 or younger than 24 (college -> full time student, educational institute.)
   (R) Residency -> has to reside with principle taxpayer for more than 1/2 year.
   (E) - Eliminate Gross Income Test
   (S) - Support Test Changes
   -> The support test has been modified to determine if the child did not contribute more than 1/2 of his own support. “Taxpayer provide over 1/2 of the child support” is not required.

Qualifying Relative (SUPORT)
(S) - Support Test: the taxpayer must support more than 1/2 (50%) of the dependent. **social security and state welfare payments are included in the dependent’s total support, but only to the extent that such amounts are actually expended for support purposes.
** Multiple Support Agreement - 2+ contribute together contribute more than 50% to the support of a person, but non of them individually over 50% ->agree to pick one contributor claim the dependency exemption. (also: the contributor must contribute more than 10%; also other contributor must file support declaration Form 2120.)

(U) Under Exemption Amount of (Taxable) Gross Income
dependent’s gross income is less than the exemption amount ($3950 in 2014)
** nontaxable income: social security (at low income levels), tax-exempt interest income (state and municipal interest income); tax-exempt scholarships.

(P) Precludes Dependent Filing a Joint Return
**if files joint return, no dependency exemption.

(O) Only for citizen of US, Mexico and Canada

(R) Relative
or
(T) Taxpayer lives with the individual for the whole year.

Question 7

Exemptions - Children of Divorced Parents

Answer 7

GR - Custodial Parents
parent having custody will take the exemption. it doesnt matter how much support the parent provides to the child. If the parents have EQUAL custody during the year, the parent with the higher adjusted gross income will claim the exemption.

Exceptions - Custodial Parent waives right.
If the custodial parent waives the right to the exemption, the noncustodial parent may cliam the exemption for his child. -> a written declaration.

Question 8

Gross Income - Gross income in General

Answer 8

Gross Income - all income from whatever source derived, unless specifically exclueded.

GR to calculate income -
cash, property (Fair Market Value), or service obtained. if noncash -> fair market value.

Question 9

Gross Income - in General - Characteriszation of income

Answer 9

4 baskets
1. Ordinary

2. Portfolio
3. Passive (rental activity)
4. Capital