Tax Season- Accounting VITA

Dependents who meet the requirements for Qualified Relative qualify the taxpayer for:

1. A $500 Family Tax Credit 2. Head of Household filing status (in some cases)

A dependent who is a qualified child of yours qualifies you for:

1. Earned Income Credit 2. Child Tax Credit and additional Child Tax Credit (if under 17) 3. Child and dependent care credit (if under 14)

Either a qualifying child or a qualifying relative of the taxpayer

Dependents

True or False? Jennifer Rawls, an eighteen-year-old single mother who can be claimed as a dependent by her parents, can claim her infant son as a dependent on her own tax return.

False.

Marie and her husband Arturo have three Forms 1099-INT: State of Washington Bond interest $300 Epping Credit Union, $600 Brenton Savings and Loan, $960 How much interest income should they report on Form 1040, Schedule B, Part I? A. $1,560 B. $1,860 C. $300 D. $1,260

A. 1,560 This is because state and municipal bonds are tax-exempt.

Capital gain distributions are also called _____.: A. Capital gain dividends B. Nondividend C. Ordinary

A. Capital gain dividends Capital gain distributions and capital gain dividends both refer to when a mutual fund sells assets for more than their cost and distributes the realized gain to the shareholders. A capital gain occurs when the owner of the mutual fund (or capital asset) sells shares in the fund (or property) for more than its cost. And realizes a profit.

Case Study 1: Joint Return Patricia Spencer, a U.S. citizen, is married to Gilberto, a nonresident alien from Spain. Patricia and Gilberto make the choice to treat Gilberto as a resident alien by attaching a statement to their joint return. Patricia and Gilberto must report their worldwide income for the year and for all later years unless the choice is ended or suspended. What filing status(es) may Patricia and Gilberto use the first year they choose to treat Gilberto as a resident alien?

Although Patricia and Gilberto must file a joint return for the tax year they make the choice, they actually have the opportunity to choose whether they file jointly or separately for the later years. Gilberto is a NONRESIDENT ALIEN, however, he is CHOOSING to file as a resident. So he must file jointly.

Steve provides $4,000 toward his mother's support during the year. His mother has earned income of $600, nontaxable Social Security benefit payments of $4,800, and tax-exempt interest of $200. She uses all of these for her support. Can Steve claim his mother as a dependent if she meets all other tests? Yes No Correct! Steve cannot claim his mother as a dependent because the $4,000 he provides is not more than half of her total support of $9,600.

Answer: No Steve cannot claim his mother as a dependent because the $4,000 he provides is not more than half of her total support of $9,600.

True or False? The gross income test considers taxable income only, whereas the support test considers all of the dependent's income - both taxable and nontaxable.

True.

On their intake sheet, Gloria indicated that her husband, Dante, is not a U.S. citizen. During the interview, you learn that Dante does not have a tax home in another country. He was physically present in the United States for 150 days in each of the years 2020, 2021, and 2022. Is Dante a resident alien under the substantial presence test for 2022? Hint*** • 1/3 of the days of presence in the first preceding year, and • 1/6 of the days of presence in the second preceding year?

Yes, because Dante was present in the US for a total of 225 days. [150 for 2022, 50 days for 2021 (1/3 of 150), and 25 days for 2020 (1/6 of 150)]

Susan and Ted are married and file a joint return. They supported Ted's parents throughout the tax year. Ted's parents do not live with Ted and Susan. Do Ted's parents meet the member of household or relationship test?

Yes, because Ted's parents meet the relationship test and are considered "relatives that don't have to live with you"

Base your answer on the previous case study facts regarding Sally except that Ann files a return only to have her withholding refunded. Can Sally claim Ann and Bobby as dependents?

Yes, because at this point, Ann is not required to file a tax return. Ann and Bobby also meet all the tests in Table 2

Tom Brown supports his wife's uncle Jim who lives in another city. The Browns file a joint return. Can the Browns claim Jim as a dependent if all other tests are met?

Yes, because he meets the relationship test. He also does not have to live with them.

Robert Richmond comes into your site to find out if he and his wife can claim their son and new daughter-in-law as dependents. You: The next test is the joint return test. Did either your son or daughter-in-law file a tax return for last year? Robert: Well, they didn't make enough money to be required to file a return, but my son had some withholding, so they want to file a return to get that refunded. Did they pass the joint return test?

Yes, because they only filed a return to get a refund of withheld taxes.

Bob is 22 and a full-time student for the entire year. During the tax year, he lived with his parents when he was not in the dorm. During the tax year, he worked part-time, but that income did not pay over half of his total support. Does Bob pass the tests for a qualifying child?

Bob meets all the qualifying child tests: he meets the relationship test, the age test (because he is under 24 and was a full-time student for at least 5 months of the year), the residency test (because his time at school is a temporary absence), and the support test (because he did not provide at least half of his own support).

Toni received the following income: tip income, interest, alimony from her 2015 divorce, inheritance, and IRA distributions. Which income is exempt from federal taxes? A. Tip Income B. Alimony C. Inheritance D. IRA distributions

C. Inheritance Inheritances, gifts and bequests are exempt from federal income taxes, but may be subject to state and local taxes.

During the tax year, Tina earned income from both a full-time and a part-time job. She received two Forms W-2, each listing different employers. How should this income be entered in the tax software?

Each W-2 form must be entered into the tax software SEPARATELY. The software will calculate and show the total on Tina's return.

Taxpayers age 65 or older MUST use Form 1040-SR instead of Form 1040 to file their return.

False

True or False? A taxpayer who does not receive a Form W-2 for taxable scholarship income does not have to report the income.

False. A taxpayer must still include the taxable portion of the scholarship in the total income entered on FORM 1040.

True or False? Taxpayers who receive tips worth $30 in one month but did not report them to their employer are not required to pay the Social Security and Medicare taxes on the unreported tips as additional tax on Form 1040.

False. To compute additional tax, use Form 4137, Social Security and Medicare Tax on Unreported Tip Income. Then enter the amount on Form 1040.

Peter works as a food server in an expensive restaurant. He tells you that he did not report his tip income of $18,100 to his employer. Must Peter file Form 4137?

Yes This is because individuals who receive $20 or more in tips in any month while working for one employer and don't report the full amount must use forms 4137 and 1040 to report and pay Social Security and Medicare tax on their tip income.

*****When Edward Chambers and his wife Lucia got married in January, Lucia was a nonresident alien. In June, Lucia obtained her green card and became a resident alien. She remained a resident for the rest of the year. Lucia wants to be treated as a resident alien for the entire year for tax purposes. Can she use the Married Filing Separately status?

Yes Taxpayers and their spouses who choose to be treated as resident aliens must file a joint return for the year that they make the choice but can file joint or separate returns for later years.

Marie, 18, earned $5,000. Her father provided more than half of her support. If all other dependency tests are met, can her father claim her as a qualifying child dependent?

Yes Because Marie is under 19, the gross income test does not apply. If the other dependency tests are met, her father can claim her as a qualifying child dependent.

Case Study 2: Dependents Joan, who is a U.S. citizen, adopted an infant boy from Cambodia who lived with her for the entire tax year. Joan's child is not yet a U.S. citizen. Can the child be claimed as a dependent?

Yes because Joan's child meets the citizenship/resident requirements of having lived with the taxpayer (Joan) for an entire year. (As long as all other dependency requirements are met)

Doris, a U.S. citizen, is 8 years old and had a small role in a television series. She made $60,000 during the tax year, but her parents put all the money in a trust fund to pay for college. She lived with her parents all year. Does she meet the support test?

Yes because the $60,000 were not used for her own support. Therefore she meets the tests for a Qualifying Child.

Keith has received Form W-2 for his part time job, but did not receive Form W-2 for a taxable college scholarship he won last year. Does Keith need to report the scholarship as income on his tax return?

Yes. Even though he did not receive form w-2 for his taxable scholarship income, he must include the amount on form 1040 as income. If entered in the software correctly, "SCH" and the scholarship amount will appear to the left of wages line on his printed tax return.

John, a U.S. citizen, lives in Germany. His wife is a German citizen who has never lived in the United States. Their 2-year-old son was born in Germany. John's stepdaughter, a German citizen whom John has not adopted, also lives with them. John and his wife provide all the support for the two children. How many dependents can John claim? a. One b. Two c. Three d. Zero

a. One John can only claim his son as a dependent. The son qualifies as a U.S. citizen because his father, John, is a U.S. citizen.

Sally has been supporting her friend, Ann, and Ann's young son, Bobby. Ann and Bobby lived with Sally the entire year and meet all the tests to be Sally's qualifying relatives. Ann worked part-time and made $3,100 in wages. Ann files a return and claims her son for the earned income credit. Can Sally claim Bobby as a dependent?

No, because Bobby is considered Ann's Qualifying Child for the sake of Earned Income Credit. However, Ann can't claim Bobby as a dependent either because she, herself is claimed as one by Sally.

Base your answer on the previous case study facts regarding Todd and Eva except that Eva's gross income is $25,000 and she is required to file a return. In this situation, are the children Todd's qualifying relatives?

No, because Eva IS REQUIRED to file a return. Also, her children meet the tests to be Eva's qualifying children

Steve provided $4,000 toward his mother's support during the year. His mother had nontaxable Social Security benefit payments of $4,800, and tax-exempt interest of $800. She used all of these for her support. Can Steve claim his mother as a dependent?

Steve: $4,000 Mother: $4,800 + 800 = 5600 Total : $4,000 + 5600 = 9,600 9,600/2 = 4800 Since the mother provided more than 4800 for her own support, then she cannot be claimed as a dependent by Steve

Mike holds a traditional IRA to which he makes contributions each year. Throughout the year, he gets statements listing the interest earned. He does not have to report any of the interest income on his traditional IRA on his tax return.

TRUE Interest on a traditional IRA(individual retirement account) is TAX-DEFERRED. Mike does not have to include that interest taxable income until he makes a withdrawal from the IRA.

Beth has three savings accounts in three different banks. The total amount of interest earned from the accounts is $2,800. Beth will receive three Forms 1099-INT. She will list each payer and amount on Schedule B and file it with her tax return.

TRUE. The interest from savings accounts must be reported.

Chloe is divorced and has one child, Timmy. During the tax year, Timmy lived with Chloe 210 nights and with his father 155 nights. Who is the custodial parent?

The custodial parent is Chloe because the child lived with her for more nights than with the father.

When can a taxpayer claim personal exemptions?

The taxpayer MUST be able to answer "no" to the intake question : "Can anyone claim you or your spouse as a dependent?"

Individuals who are not required to file a tax return should file a return if they can claim the earned income credit.

True

True or False? A resident of Mexico meets the requirements of the citizen or resident test.

True.

To qualify as a resident alien for tax purposes, a non-U.S. citizen with no green card must be physically present in the United States for a total of at least ______ days over a 3-year period assuming that the days are counted according to the requirements of the test. a. 214 b. 183 c. 120 d. 31

b. 183 days Individuals who have been present in the US for at least 183 days including the current year, meet the requirements of the substantial presence test. (The current year must be 31 days) Then, 1/3 of the days in the first year before the current year; and 1/6 of the days in the second year before the current year.

personal exemption

set amount that you subtract from your gross income for yourself, your spouse, and any dependents

A taxpayer cannot claim a qualifying child dependent if that child provides more than how much of their own support?

50%

What does the Gross Income Test consider?

Taxable Income ONLY

In your interview with Nancy, you learn that she received a refund of the previous tax year's state income taxes. What do you need to know to determine if Nancy owes taxes on her state tax refund? Did you itemize your deductions last year? Did you include the state and/or local income taxes that you paid for that year? If the answer to both questions is yes, complete the state tax refund worksheet in the software. The software calculates the taxable part of the refund (if any) and enters the amount on Form 1040.

-Did you itemize your deductions last year? -Did you include the state and/or local income taxes that you paid for that year? If the answer to both questions is yes, complete the state tax refund worksheet in the software. The software calculates the taxable part of the refund (if any) and enters the amount on Form 1040.

For a taxpayer to claim a person as a qualified relative, he or she:

1. Cannot be the taxpayer's Qualified child or the Qualified Child of any other taxpayer 2. The taxpayer may claim any other person who does not fall into the relationship as a Qualified Relative if they lived with you for an entire year. 3. The taxpayer must provide over 50% of their support 4. He or she must not have over $4,400 in gross taxable income (4,400 is adjusted for inflation for 2022)

What are the 4 ground rules of dependency?

1. Dependents cannot claim dependents of their own. 2. Dependents generally cannot file joint returns 3. Dependents must be citizens or residents of the U.S., a U.S. national, or a resident of Canada or Mexico. 4. A dependent must have a SSN, ITIN, or ATIN.

To be a qualifying child:

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. An adopted child is always treated as your own child. The term "adopted child" includes a child who was lawfully placed with you for legal adoption 2. The child must have lived with you for more than half of the year 3. The child must be: (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a full-time student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally

Mark Gibson, a U.S. citizen, lives in Italy. His wife, Liliana, is an Italian citizen and has never lived in the U.S. She earned income in the tax year by working full time at her family's restaurant in Italy. She has an ITIN and no other taxpayer can claim her as a dependent. Which of the following statements is true? A. Mark can file a Married Filing Separate return B. Mark cannot file a joint return with his spouse and have her treated like a resident alien for tax purposes C. If Mark files a Married Filing Separate return, he must report all his wife's income on his return D. Mark is required to file a joint return and include all their worldwide income

A. Mark can file a Married Filing Separately return. Nonresident alien spouses of U.S. citizens or residents have a choice in whether they want to be treated as residents for tax purposes, however, she did not choose and therefore is considered a nonresident.

Olivia held both common stock and preferred stock in several U.S. corporations. Several of them paid dividends during the tax year. She received Forms 1099-DIV listing these as: A. Ordinary Dividends B. Mutual Funds C. Nondividend Distributions D. Real Estate Investment Trusts

A. Ordinary Dividends Since these are ordinary dividends and she will receive forms 1099-DIV, then she will list these as ordinary dividends.

What does the Support Test consider?

ALL of the dependent's income. BOTH Taxable and Non-taxable

Raul is a U.S. citizen who is serving in the U.S. Army in Japan. His wife and children live with him and he is able to claim the children as dependents. Raul's wife, a citizen of Japan, chooses not to be treated as a resident alien for tax purposes. She does not want to file a joint return with him. Raul meets all of the other qualifications for Head of Household. Even though he is married and living with his spouse, can he claim Head of Household status?

Answer: Yes This is because he has qualifying children. If he didn't have children, he would have to file Married Filing Separately since his wife chose not to file a joint return. His wife is also not a U.S. citizen or resident and therefore he can be considered unmarried for tax purposes.

Susan and Ted are married and will file a joint return. They have supported Ted's parents for the majority of the tax year. Ted's parents do not live with Ted and Susan. Do Ted's parents meet the member of the household or relationship test? a. Yes b. No

Answer: Yes. A taxpayer's father-in-law and mother-in-law do not have to live with the taxpayer the entire year in order to meet the member of household or relationship test.

Barbara owns a $500 U.S. Series EE savings bond. She paid $250 for the bond. When the bond matures, Barbara will receive $500. At the end of the first year, the bond is worth $265. Can Barbara wait until the bond matures to report all the interest at once, or does she have to report the interest each year?

Barbara can wait until the bond matures to report all the interest ($250) she received.

A driver's license can be used to verify a taxpayer's Social Security number and correct name spelling.

False

Who is an exempt individual? Generally, an exempt individual is a: Foreign government-related individual Teacher or trainee who is temporarily present under a J or Q visa Student who is temporarily present under an F, J, M, or Q visa Professional athlete who is temporarily in the United States to compete in a charitable sports event

Generally, an exempt individual is a: -Foreign government-related individual -Teacher or trainee who is temporarily present under a J or Q visa -A student who is temporarily present under an F, J, M, or Q visa -A professional athlete who is temporarily in the United States to compete in a CHARITABLE sports event

All income received in the form of money, goods, property, and services that isn't exempt from tax.

Gross Income

The dependent's gross income cannot exceed the threshold amount for the tax year.

Gross Income Test

If a U.S. savings bond is issued in the names of co-owners, such as the taxpayer and a child, or the taxpayer and spouse, then the bond's interest is generally taxable to the co-owner who purchased the bond. Can you determine who pays the tax on the bond interest for the situation described in the table below? IF... Pat uses his funds to buy a bond in his name and the name of Tracy as co-owners, THEN tax on the bond's interest must be paid by... IF... Pat buys a bond in the name of Tracy, who is the sole owner of the bond, THEN tax on the bond's interest must be paid by... IF... Pat and Tracy buy a bond as co-owners, Pat contributes 75% of the purchase price; Tracy 25% , THEN tax on the bond's interest must be paid by... IF... Spouses Pat and Tracy, who live in a community property state, buy a bond that is community property, THEN tax on the bond's interest must be paid by...

IF... Pat uses his funds to buy a bond in his name and the name of Tracy as co-owners, THEN tax on the bond's interest must be paid by... Answer: Pat. Since Pat bought the bond under his name. IF... Pat buys a bond in the name of Tracy, who is the sole owner of the bond, THEN tax on the bond's interest must be paid by... Answer: Tracy. Because Tracy is the sole owner of the bond. IF... Pat and Tracy buy a bond as co-owners, Pat contributes 75% of the purchase price; Tracy 25% , THEN tax on the bond's interest must be paid by... Answer: Both. Pat pays taxes on 75% of the interest and Tracy pays 25% of the interest.. IF... Spouses Pat and Tracy, who live in a community property state, buy a bond that is community property, THEN tax on the bond's interest must be paid by... Answer: Community property= 50/50 Therefore Pat and Tracy each pay taxes on 50% of the interest.

Ted is divorced and has a daughter who lived with him and his ex-spouse for an equal number of nights. Ted's adjusted gross income is $45,000 and his ex-spouse's adjusted gross income is $30,000. Who is the custodial parent?

If the child lived with each parent for an equal number of nights during the year, the custodial parent would be the parent with the higher adjusted gross income. In this case, this is Ted.

Sherrie's father received $2,700 from Social Security, but he put $300 of it in a savings account and spent only $2,400 for his own support. Sherrie spent $2,600 of her income for his support, so she has provided over half of his support.

In order for Sherrie's father to meet the support test, Sherrie would have to provide more than 50% of his support, which she DID.

Base your answer on the previous case study regarding Sherrie and her father what if all the facts were the same in this scenario, except that Sherrie's father had spent all his income on himself?

In this scenario, he would not meet the support test. Regardless of whether the social security is taxed or not, he spent all of his income on himself.

Volunteer: The questions I'm about to ask you will help us figure out if you can be claimed as a dependent by your parents. First of all, you aren't married and you are a U.S. citizen, correct? Ray: Yes, that's correct. Volunteer: And you were under age 24 at the end of the tax year and a full-time student? Ray: That's right. Volunteer: Did you live with your parents for more than half the year? Ray: I lived with them during the summer and other school breaks, but when school was in session, I lived in the dorm on campus. Volunteer: Ok, that's considered a temporary absence so for tax purposes, you lived with your parents all year. Did you pay more than half of your own support? Ray: Well, I don't think so. I worked part-time, but I didn't make that much. I used my money to buy a few books and some food, but my parents paid my tuition, room, and board, and most of my other expenses like clothing and medical bills. Volunteer: Based on what you've told me, you are considered a qualifying child of your parents and they can claim you as a dependent. We will indicate this on your return so it doesn't cause problems for your parents when they file their return. Ray: Okay, thanks. The scenario continues with Ray Jackson. Based on this information, can Ray claim a personal exemption for himself?

No, because Ray can be claimed as a dependent by his parents.

Case Study 1: Dependents Ruth, who had no income, was married in November of the tax year. Ruth's husband had $30,000 in income, and had a filing requirement. Ruth's father supported her and paid for the wedding, can he claim her as a dependent?

No, because Ruth is filing jointly with her now-husband.

Tim Jenkins has a question about whether he can claim his son as a dependent on his tax return. Follow this conversation and think about how you would respond. Tim: My son still lives at home. Can I claim him as a dependent? You: How old is your son? Tim: He turned 25 last year. You: How much gross income did he earn? Tim: He worked as a part time bartender and made about $5,500 last year. You: What did you contribute toward his financial support? Tim: Well I paid for most of his living expenses, for example, housing, food, and medical. Can he claim his son as a dependent?

No, because at this point, his son is too old and he earned more than the threshold amount of 4,400 for the tax year. Therefore he does not meet the gross income test.

Randy's son, Paul, is not a qualifying child. Paul earned $6,800 from a part-time job. Does he meet the gross income test for a qualifying relative?

No, because he earned more than $4,400.

Allen can be claimed as a dependent on his mother's tax return, but his mother is not claiming him as a dependent. Can Allen claim his personal exemption on his own tax return?

No, because his mother CAN claim him as a dependent. even if she still chooses not to.

Joe is 65 years old and lives with his son and daughter-in-law. Joe's taxable pension income for the year was $10,000. Can Joe's son and daughter-in-law claim him as a dependent?

No, because his taxable income is more than the threshold of $4,400 for 2022.

Do you have enough information to determine if Robert and his wife can claim their son and daughter-in-law as dependents?

No, because the three tests the son and daughter-in-law just passed apply to everyone. (residency, joint return, and taxpayer dependency test) They must pass additional tests to verify that they can be claimed as dependents.

*** Wally claimed the standard deduction on last year's tax return for a state refund. Does he have to include the refund in his taxable income?

No. Taxpayers who claimed the standard deduction on the tax return for the year they received a refund of STATE and LOCAL taxes DO NOT have to include the refund in their taxable income.

Assume William Burke's sister-in-law, Athena, is a Canadian citizen living in the Burkes' home in Greece for the entire tax year. William provided more than 50 percent of Athena's total support. Can William claim his sister-in-law as a dependent?

No. Athena would have to reside in Canada for at least some part of the year to qualify.

Juan is a citizen of the Philippines and does not have a green card. He came to the United States for the first time on November 1, 2020, and was here for 30 days. In 2021, Juan was in the United States for 60 days. Juan returned to the Philippines and came back to the United States on September 1, 2022. He stayed in the United States for the rest of the year. Does Juan meet the substantial presence test?

No. He was present for only 147-148 days over the three-year period. 2022: 121-122 days 2021: 60 days [however only 20 days are counted toward the test =(60(1/3))] 2020: 30 days [however only 5 days are counted toward the test =((30(1/6))]

Wendy holds a traditional IRA to which she makes contributions each year. Throughout the year, Wendy gets statements listing the interest earned. Is she supposed to pay taxes on any of this interest income?

No. Interest on a traditional IRA is tax deferred. No tax is owed on that interest until the taxpayer makes withdrawals from the IRA.

Sharon claimed the standard deduction on last year's tax return and received a state tax refund. Is the refund taxable and, if so, how does Sharon report it?

No. Only taxpayers who itemized deductions and receive a state or local refund may have to include all or part of the refund in their taxable income.

William Burke's wife is a Greek citizen. Her sister, Athena, who is also a Greek citizen, lived in the Burkes' home in Greece for the entire tax year. William provided more than 50 percent of Athena's total support. Can William claim his sister-in-law as a dependent?

No. This is because Athena was not a citizen nor resident of the U.S. at any time during the tax year. Therefore William cannot claim her as a dependent.

Jay is in the U.S. Army in Germany. His wife and children live with him and he is able to claim the children as dependents. Jay's wife (a citizen of Germany) chooses to be treated as a resident alien for tax purposes. Jay meets all of the qualifications for Head of Household. Even though he is married, can he claim Head of Household status (assuming he meets the other requirements for filing as Head of Household)?

No. This is because Jay's wife is choosing to be treated as a resident alien for tax purposes. If she were being treated as a nonresident alien, Jay would be considered unmarried for tax purposes and would be able to file Head of Household status.

Ian Dawson was a nonresident alien when he married Judy Miller on December 31, 2020. They chose to treat Ian as a resident alien and filed joint tax returns for tax years 2020 and 2021. To their 2020 return, they attached the required signed declaration stating that they both choose to be treated as resident aliens. In January 2022, Ian returned home to Scotland to take care of his father who was gravely ill. For part of the 2022 tax year he was a nonresident alien. Was Ian and Judy's choice to treat Ian as a resident alien suspended for this reason?

No. This is because once the choice is made to treat a nonresident alien as a resident alien for tax purposes, the choice is suspended only if neither spouse is a U.S citizen nor resident during that year.

Martin and Regina were married until their divorce in November of the tax year. Can they take an exemption for each other since they were married most of the year?

No. Because they got divorced during the tax year. They cannot claim their (former) spouse as an exemption

Can a married taxpayer claim their spouse as a dependent?

No. A spouse is never considered a dependent of the other spouse.

Paul, a U.S. citizen, and his wife, Gabriella, were married at the end of 2022. Gabriella does not have a green card or a valid visa and they have no children and are not supporting anyone else. She lived in the United States for 120 days in 2022 (from September to December). She was in the United States for 120 days in each of the years 2020 and 2021. Do you think Gabriella can be considered a resident for tax purposes?

No. She is NOT considered to be a resident When we total the following: The full 120 days of presence in 2022 Plus, 40 days in 2021 (1/3 of 120), and 20 days in 2020 (1/6 0f 120) We get a total of 180 days for the 3-year period. SHE NEEDS A TOTAL OF 183 TO MEET THE SUBSTANTIAL PRESENCE TEST FOR 2022

What is the Tie Breaker rule?

Only one taxpayer can claim each dependent; IRS rules prohibit parents from "splitting" a dependent. When the child lives with each parent exactly equally, the tiebreaker goes to the parent with the higher adjusted gross income. The parent who has majority custody usually gets to claim the child as a dependent.

Case Study 1: Workout Resources LaDonna received the following income: wages, interest, child support, alimony from her 2016 divorce, inheritance, workers' compensation, and lottery winnings. Which sources of LaDonna's income are taxable and which are nontaxable? SOURCE TAXABLE? Wages Interest Child support Alimony Inheritance Workers' compensation Lottery winnings

SOURCE TAXABLE? Wages Yes Interest Yes Child support No Alimony Yes Inheritance No Workers' compensation No Lottery winnings Yes

Four years ago Barbara bought a U.S. Series EE savings bond and decided to report the interest it earns each year until maturity. This tax year Barbara bought another Series EE savings bond. Can she wait until the second bond matures to report all the interest it earns?

Savings bond owners must use the same interest-reporting method for all Series EE and Series 1 they own. Series EE- doubles in value after 20 years Series 1- fixed interest rate, bi-annually adjusted for inflation

Mandy worked two jobs. She was a quality inspector during the week and a bartender on the weekends. She reported all of her tip income ($3,000) to her employer. Her Forms W-2, box 1, showed income of $21,000 (quality inspector) and $8,250 (bartender). What amount will Mandy report as wages on her Form 1040?

She will report $29,250 (21,000 + 8250) Mandy's bartending tips are already included in the box 1 amount shown on her W-2 for that job so she just adds up all her wages.

Fred works as a repairman during the week and as a barber on alternate Saturdays. His tips are less than $20 in any month, and he does not report them to his employer. The amounts from box 1 on his Forms W-2 show income of $23,500 (repairman) and $1,950 (barber). His unreported tip income was $200. Fred will report $25,650 as wages on Form 1040. This is the total of his Forms W-2 income and his unreported tip income ($23,500 + $1,950 + $200). Repairman W-2, box 1 $23,500 Barber W-2, box 1 $1,950 Barber Unreported Tips $200 Form 1040 $25,650 How would this change if Fred did report his income to his employer?

The tips then would be included in box 1 of the W-2 form that he received from the barbershop $2,150 ($1,950 plus $200). Then he would add this amount to wages (23,500 + 2150). There would be no unreported tip income.

Bob is 27 years old. No one can claim him as a dependent. His gross income was $17,000 during the tax year. Based only on this information, Bob is required to file a tax return.

True

Lilah, a U.S. citizen, lives in Japan. She is married to Kenji, a Japanese citizen who has never been in the United States, and the couple has never elected to treat Kenji as a resident alien for tax purposes. They have two children, for whom they provide total support. Lilah has decided that using the Head of Household filing status on her tax return would result in a lower tax. Can Lilah file as Head of Household?

Yes. This is because the couple has never elected to treat Kenji (the spouse) as a resident alien for tax purposes. Despite the fact that he is married to Lilah, Lilah can be considered unmarried for tax purposes because Kenji is not a U.S. citizen or resident.

Kelly receives alimony payments made under a divorce decree executed in 2017. Are these alimony payments considered part of Kelly's taxable income?

Yes. Alimony payments made pursuant to divorce or separation instruments executed on or before December 31, 2018, are taxable income to the person receiving them and reported on Form 1040

Is a person who holds an alien registration card considered to be a lawful permanent resident of the United States?

Yes. Individuals who are granted lawful permanent residency (such as a green card) in the U.S. are considered to be permanent residents.

Paul Stone, a U.S. citizen, is married to a Chinese citizen. Their daughter was born in China during the tax year. Does his daughter meet the citizen/resident test?

Yes. Paul's daughter is considered to be a U.S. citizen

In addition to taxable distributions, Form 1099-DIV also shows nondividend distributions, such as the return of the taxpayer's cost or other basis in a stock or security. Do taxpayers need to keep the information with their tax records in order to calculate the adjusted basis of the stock when it is sold?

Yes. The taxpayer will need the information on the nontaxable part of the distribution to calculate the adjusted basis of the stock when it is sold.

Julio Isanti was a resident alien on December 31, of the tax year, and married to Mary, a nonresident alien. Can they choose to treat Mary as a resident alien and file a joint income tax return?

Yes. When a taxpayer is a citizen or resident alien whose spouse does not meet the substantial presence test or green card test, the couple may choose to file as Married Filing Jointly and treat the nonresident spouse as a resident alien.

Todd has lived all year with his girlfriend, Eva, and her two children in his home. This cohabitation does not violate local laws. Eva is not required to file, and does not file, a tax return this year. Eva and her two children pass the "not a qualifying child test" to be Todd's qualifying relatives. Can Todd can claim them as dependents if he meets all the other tests?

Yes. A child may qualify as the taxpayer's dependent under the tests for qualifying relative, even if that child is the qualifying child of another taxpayer. This is allowed only when the child's parent (or other person for whom the child is a qualifying child) is not required to file an income tax return and either does not file a return, or only files to get a refund of income tax withheld or estimated tax paid.

Your mother receives $12,500 in social security benefits, and a small $2,500 pension, is she a Qualified Relative?

Yes. Because the only taxable income she makes is below $4,400 ($2,500), her relationship to you is mother and she meets the relationship test, and she's not yours or anyone else's qualified child. All of this... as long as you provide more than $15,000 in supporting her.

On the Intake/Interview & Quality Review sheet, taxpayers and their spouses indicate whether or not they are U.S. citizens and the citizenship or residency of their family members and dependents. If the taxpayer checked "No" for U.S. citizen on the Intake/Interview sheet, what should you do?

You must determine the person's residency status.

Dependency Exemption

a fixed deduction allowed for each individual who qualifies as a "dependent" of the taxpayer.

What are tax exemptions?

a monetary examination which reduces taxable income tax exempt status can provide complete relief from taxes, reduced rates or tax on only a portion of items

Cassandra has received a Form W-2 for her part-time job and another Form W-2 for a college scholarship she won last year. What is the correct treatment of these income amounts? a. Both Forms W-2 should be included in income on Cassandra's tax return b. Cassandra only needs to report the wages from her part-time job as income c. Cassandra must file a paper return and write "SCH" next to the scholarship amount d. Report only her part-time income and write "SCH" next to the scholarship amount

a. Both forms w-2 should be included in income on Cassandra's tax return Since Cassandra received a Form w-2 for her scholarship income as well, she can treat that income as taxable income the same way she treats her part-time job income.

You are trying to determine whether John can claim his mother as a dependent on his tax return. Follow along in the conversation, then select the correct question to ask. You: Is your mother a U.S. citizen? John: Yes, my mother is a U.S. citizen. How would you respond? a. Did your mother file a joint return with anyone else for this tax year? b. You can claim your mother as a dependent as long as she is a U.S. citizen.

a. Did your mother file a joint return with anyone for this tax year? This is because we have to make sure she meets the joint test. Meaning she cannot have filed a joint return for the year if John wants to claim her as a dependent.

Under the substantial presence test, the term "United States" includes which of the following areas? a. District of Columbia b. Canada c. Mexico d. Brazil

a. District of Columbia The term "United States" includes all fifty states, the District of Columbia, the territorial waters of those areas adjacent to the U.S. territorial waters.

Ryan and Julie were married on December 29 of the tax year. They should file as: a. Married Filing Jointly b. Qualifying widow(er) c. Single d. Married Filing Separately e. Head of Household

a. Married Filing Jointly

Phil is a widower who works full-time and has an AGI of $35,000. He supports his 16-year-old daughter, Mariah, who lives with him in California. Phil's parents also live with him. Phil's parents always file a joint return to pay tax on their pension income, investment income, and Social Security benefits. Phil's parents' AGI is $42,321. Everyone in Phil's family is a U.S. citizen and has SSNs. This tax year, Mariah earned $10,000 working part-time. She put the $10,000 in a college savings account. If Phil and his parents both claim Mariah as a dependent on their returns, who would be entitled to claim Mariah as a dependent based on the tie-breaker rule? a. Phil would claim Mariah as a dependent because he is Mariah's parent. b. Phil's parents would be entitled to claim Mariah as a dependent since their AGI is higher.

a. Phil would claim Mariah as a dependent because he is Mariah's parent. The AGI of neither party matters much at this point. The nature of the father/daughter relationship is still present. So will wins the tie-breaker rule.

Which of the following types of income are taxable? a. Stock and credit union dividends b. Veterans' life insurance dividends c. Workers' compensation d. Child support

a. Stock and credit union dividends The rest of the answers are non-taxable forms of income.

This tax year, Jacob and Rita Newberry attached a statement to their tax return stating that they choose to be treated as U.S. residents for the entire year. If Jacob and Rita's choice ended, which of the following would not preclude them from making this choice again in future years? a. They moved to a foreign country b. Either spouse revoked the choice by attaching a statement to their return c. Divorce or legal separation d. Death of either spouse

a. They moved to a foreign country Moving to a foreign country would not preclude Jacob and Rita from making the choice of filing a joint return as U.S. residents in future years.

You are trying to determine whether John can claim his mother as a dependent on his tax return. Follow along in the conversation, then select the correct question to ask. You: Do you know what your mother's total support requirements were for the year, and how much of that you contributed? John: I contribute about $3,600 a year toward my mother's food, medical, and utilities. Her total yearly support requirements, including rent, food, medical, clothing, etc., are about $8,000 a year. How would you respond? a. Well, unfortunately you cannot claim her as a dependent. You did not contribute more than half of her financial support for the entire year. b. You can claim her as a dependent because you provided monthly support

a. Well, unfortunately, you cannot claim her as a dependent. You did not contribute more than half of her financial support for the entire year. John's mother used her own resources (nontaxable Social Security benefits) to provide for her own support. John provided $3,600, which was not over half the total support for his mother. ($8,000 X 50% = $4,000, which is greater than $3,600

Melvin is a single 20-year-old full-time student who works part-time. During the interview with Melvin, you learn that: Melvin's only income was $6,400 in wages He lived with his parents all year and they provided more than half of his support, but they will not claim him as a dependent Melvin can claim _____. a. 0 exemptions because his income was less than $10,0000 b. 0 exemptions because his parents can claim him as a dependent c. 1 exemption because he had earned income d. 1 exemption, because his parents have decided not to claim him

b. 0 exemptions because his parents can claim him as a dependent

You are trying to determine whether John can claim his mother as a dependent on his tax return. Follow along in the conversation, then select the correct question to ask. You: Did your mother file a joint return with anyone else for this tax year? John: No, she is not filing a joint tax return this year. She only received Social Security benefits of $6,000 during the tax year. How would you respond? a. Well, unfortunately you cannot claim her as a dependent; her income was over the threshold amount. b. Do you know what your mother's total support requirements were for the year, and how much of that you contributed?

b. Do you know what your mother's total support requirements were for the year, and how much of that you contributed? This is because social security benefits in this case are considered non-taxable income. Therefore the gross income test was met. Even though the amount was more than 4,400 (threshold amount)

Bob holds a promissory note for a cash loan that he made to his brother-in-law, Stan. Stan pays Bob principal and interest each month. Bob received $2,000 in interest, but did not receive a Form 1099-INT. How should he report this income? a. He enters the amount directly on Form 1040 b. He enters the amount on Schedule B and files it with his tax return c. He is not required to report this income because he did not receive a Form 1099-INT for it

b. He enters the amount on Schedule B and files it with his tax return Even though Bob does not receive Form 1099- INT, he reports that interest on Schedule B of his tax return.

Elaine Smith has one Form W-2 from her clerk job of 36 years, showing wages of $37,000. She has been divorced from her husband for over 20 years. She pays all the costs of keeping up her home and is the main provider for her seven-year-old granddaughter Lisa and her 30-year-old son, Todd. Lisa is Todd's niece. Both her son and granddaughter lived with Elaine all year. Her son worked part-time and earned $9,000. He is not disabled. She wants to file a tax return and claim her son and granddaughter as dependents. To help Elaine, you would first use the interview tips in the Volunteer Resource Guide to ask about each of her sons and grandchildren. Based on this information, you would be able to explain to Elaine that she can claim _____ as a dependent. a. Her granddaughter and her son b. Her granddaughter only c. Her son only d. either her granddaughter or her son

b. Her granddaughter only This is because Lisa is a qualifying child of Elaine and Todd, and Elaine has a much higher gross income than Todd. However, she cannot claim Todd because he does not pass the gross income test to be Elaine's qualifying relative.

You are trying to determine whether John can claim his mother as a dependent on his tax return. Follow along in the conversation, then select the correct question to ask. John: I am supporting my mother, who is a widow. Can I claim her as a dependent? How would you respond? a. Did your mother live with you the entire tax year? b. Is your mother a U.S. citizen?

b. Is your mother is US citizen? This is because John's mother meets the criteria of the relationship test and therefore is not required to live with him.

Jessica has been raising her son, Jim, alone since her husband died 5 years ago. This year, Jessica earned $25,000. Jim, who lives with Jessica, is single, and does not provide more than half of his own support. He was 19 years old on September 17. Jim is not a full-time student and is not disabled. He worked for a short time at a fast food restaurant and made about $1,800. Jessica and Jim are both U.S. citizens and have SSNs. Is Jim the qualifying child or qualifying relative of Jessica? a. Jim meets the requirements for being Jessica's qualifying RELATIVE. b. Jim is Jessica's qualifying CHILD since he is her son.

b. Jim meets the requirement for being Jessica's qualifying RELATIVE This is because he is not a full-time student or disabled, and is 19. Despite the fact that he remains her son. He would meet the requirements for a qualifying child if he was under 19.

During the tax year, Laramie earned $1,300 providing occasional childcare, cleaning, and cooking services for a household. The employer did not withhold federal income taxes from her wages, and did not issue a Form W-2 for her. Which statement is true? a. Laramie needs to request a Form W-2 from the employer b. Laramie must report the income on Form 1040 c. Laramie and the employer all owe Social Security and Medicare tax on Laramie's wages

b. Laramie must report the income on Form 1040 An employer is not required to provide Form W-2 to a household employee who earns less than the threshold amount for that year. In this situation, neither the employer nor the employee will owe Social Security or Medicare tax on those wages. However, Laramie must still report her income.

Is income produced by investments, such as interest on savings or dividends on stock, considered EARNED income? a.Yes b.No

b. No Income produced by investments is considered UNEARNED income.

Anne's husband died one year ago. Anne has not remarried during the current tax year, but she has an 18-year-old dependent son. Anne's filing status should be: a. Married Filing Jointly b. Qualifying widow(er) c. Single d. Married Filing Separately e. Head of Household

b. Qualifying Widow(er)

Sgt. Betty Zavala is a U.S. citizen who has been in the U.S. Army for 8 years. She is stationed in Italy and is married to an Italian citizen who has never lived in the United States. Their 3-year-old daughter was born in Italy. Sgt. Zavala has also adopted her husband's son, who lives with them. The Zavala's provide total support for the two children. How many dependents can Sgt. Zavala claim on a joint return? a. One b. Two c. Three d. Zero

b. Two Sgt. Zavala can claim two dependents on her joint return -- her daughter and her stepson. She can claim her stepson because she has adopted him.

Under what circumstances must a person report taxable income? a. always b. always, unless income is only from interest c. always, unless income is so small that a tax return is not required d. always, unless the person is identified as a dependent on someone else's tax return

c. Always unless income is so small that a tax return is not required

It is February 4 and Charles has not received his Form W-2. What is the first thing Charles should do? a. Contact the IRS for assistance b. File his tax return without the W-2 c. Contact his employer d. File Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

c. Contact his employer It is still early enough to find out when the form was mailed or if it can be picked up by a person. However, is Charles does not receive the form w-2 after a reasonable amount of time, he should contact the IRS for assistance, but not before Feb 15. And if he does not receive his form by the due date of the return, he should file using form 4852. 4852 is a last resort...

When are employees required to report their tip income to their employer? a. If they receive any tips at all b. If their tips total $20 or more per week c. If their tips total $20 or more per month c. They don't have to report their tip income

c. If their tips total $20 or more per month Tips reported to employers are included as wages on Form W-2 AND are subject to federal income tax.

Which of the following meets the member of household or relationship test for taxpayer John Smith? a. John Smith's 10-year-old cousin who lives with John's parents, but is supported by John b. John's foster parent who did not live with John c. John's foster child who has lived with him for seven months and is cared for by John as his own d. John's great-aunt who did not live with him

c. John's foster child who has lived with him for seven months and is cared for by John as his own

Bob and Judy live together and are not married. They have one child together, Katie, who is 4 years old. Bob, Judy, and Katie are U.S. citizens and have SSNs. Katie did not provide any of her own support and lived with Bob and Judy all year. Bob's AGI is $18,500 and Judy's AGI is $14,000. They had no other income. Neither Bob nor Judy can be claimed as a dependent by any other taxpayer. Bob pays for Katie's daycare so he and Judy can work. Bob pays over half of the costs of maintaining their home. Who may claim Katie as their qualifying child, and what can be claimed on the return? a. Only Bob can claim Katie as a dependent. b. Only Judy can claim Katie as a dependent. c. Katie is a qualifying child for both Bob and Judy. If they agree and Bob claims Katie, he can claim the Head of Household filing status, the child tax credit, the child and dependent care credit, and the earned income credit if all other rules are met. d. Judy can claim the child tax credit and earned income credit for Katie, and Bob can claim the Head of Household filing status and the dependent care credit.

c. Katie is a qualifying child for both Bob and Judy. If they agree and Bob claims Katie, he can claim the Head of Household filing status, the child tax credit, the child and dependent care credit, and the earned income credit if all other rules are met. Since Katie is a qualifying child for both parents, they can decide on who will claim Katie with all the benefits. Custody does not matter since they all live together.

Gloria is a U.S. citizen. She is married to Dante, who meets the substantial presence test. They do not have any children and do not support anyone else. Gloria has an SSN and Dante is applying for an ITIN. They live together. Which filing statuses can Gloria and Dante use? a. Single or Married Filing Jointly b. Single or Married Filing Separately c. Married Filing Jointly or Married Filing Separately d. Married Filing Separately or Head of Household e. Married Filing Jointly or Head of Household

c. Married Filing Jointly or Married Filing Separately Gloria and Dante were married as of the last day of the tax year and lived together.

Mary and Ralph were divorced four years ago. They have one child together, Amy, who lives with Mary. All are U.S. citizens and have SSNs. Mary and Ralph provide more than half of Amy's support. Mary's AGI is $31,000 and Ralph's AGI is $39,000. Amy is 12 years old. The divorce decree does not state who can claim the child. Which of the following is true? a. Ralph can claim Amy as a dependent without any documentation. b. Mary must claim Amy as a dependent because she is the custodial parent. c. Mary can sign Form 8332 so Ralph can claim Amy as a dependent and he can claim the child tax credit. Mary can use the Head of Household filing status, and she can claim the earned income credit and the child and dependent care credit as long as she meets the requirements for those specific benefits. d. Neither Ralph nor Mary can claim Amy as a dependent or for any of the other benefits.

c. Mary can sign Form 8332 so Ralph can claim Amy as a dependent and he can claim the child tax credit. Mary can use the Head of Household filing status, and she can claim the earned income credit and the child and dependent care credit as long as she meets the requirements for those specific benefits. The exception for children of divorced or separated parents or parents who live apart applies. Since Mary signed Form 8332, the child tax credit is given to Ralph, the noncustodial parent. However, Mary can use Amy to file as Head of Household and to claim the earned income credit and the child and dependent care credit assuming she otherwise qualifies for them. (This is what form 8332 does)

Becky and Frank were divorced on December 29 of the tax year. They have no children or other dependents and have not remarried. Their filing status should be: a. Married Filing Jointly b. Qualifying widow(er) c. Single d. Married Filing Separately e. Head of Household

c. Single

Cindy's husband died on August 19 of the tax year. Cindy has no dependents and has not remarried. She should file as: a. Married Filing Jointly b. Qualifying widow(er) c. Single d. Married Filing Separately e. Head of Household

d. Married Filing Jointly This is because Cindy's husband died during the tax year, therefore she would still be considered married for the remainder of the year. Provided that she did not marry before December 31.

The Jackson family would like to claim their daughter and son-in-law as dependents. Which of the following must be true in order for the daughter and son-in-law to meet the joint return test? a. Their combined income cannot exceed $3,500 b. They must live with the Jackson family c. They must not have filed a joint return except to claim a refund of withheld income tax or estimated tax paid d. They must be under the age of 24 at the end of the year

c. They must not have filed a joint return except to claim a refund of withheld income tax or estimated tax paid. the taxpayer's dependent cannot have filed a joint return for the tax year in question. However, the joint return test does not apply if the dependent and his or her spouse filed the joint return ONLY to claim a refund of withheld income tax or estimated tax paid.

Sal Catron is a U.S. citizen and his wife, Reina, is a nonresident alien. They file a joint return, to which they attach a statement declaring their choice to treat Reina as a resident alien. Which of the following events would end the choice for later years? a. Sal and Reina file a separate return the next year b. Sal and Reina fail to attach a statement to their tax return in future years c. The death of either spouse d. Sal and Reina live outside the U.S. for an entire tax year

c. the death of either spouse The choice to treat a nonresident alien spouse as a resident alien applies to all later years unless suspended or ended. The choice may be suspended during a later year if neither spouse is a U.S. citizen nor a resident alien during that year. The choice may be ended due to REVOCATION OF CHOICE, death, divorce, legal separation, or inadequate records.

Which of the following types of income are exempt from federal taxes? a. Jury duty pay b. IRA distributions c. Tips d. Inheritances

d. Inheritances Only inheritances are exempt from federal tax.

Diane and her brother each provide 20% of their grandmother's support for the year. Two persons who are not related to Diane's grandmother, and who do not live with her, provide the remaining 60% of her support equally. Who is entitled to claim the grandmother as a dependent? a. Diane b. Diane's brother c. One of the two persons providing the remaining 60% of support d. No one

d. No one This is because Diane and her brother do not provide 50% or more of their grandmother's support. And the people who do, don't live with her and are not related to her.

Which of the following tip income is exempt from federal income tax? a. Tips of less than $20 per month b. Tips not reported to the employer c. Noncash tips d. None of the above

d. None of the above is exempt ALL tip income is subject to federal income tax. Even when in the case of only earning tips below $20 a month. Just because you do not report them to your employer, does not mean they are not taxed.

Hazel has four savings accounts in four different banks. The total amount of interest earned from the accounts is $3,000. Hazel receives four Forms 1099-INT. How should she report this interest income? a. She is not required to report this income b. She enters each amount separately on Form 1040 c. She enters the $3,000 total on Form 1040; she does not have to report each payer anywhere d. She lists each payer and amount on Schedule B and files it with her tax return

d. She lists each payer and amount on Schedule B and files it with her tax return Taxpayers must complete Schedule B if the total interest received is over $1,500

Jane's husband moved out of their home in February of the tax year and has not returned. Jane provides all the cost of keeping up the home for herself and her two dependent children. Jane refuses to file a joint return with her husband. What filing status should she use? a. Married Filing Jointly b. Qualifying widow(er) c. Single d. Married Filing Separately e. Head of Household

e. Head of Household To qualify for the head of household filing status while married, you must be considered unmarried on the last day of the year, which means you must: File your taxes separately from your spouse Pay more than half of the household expenses Not have lived with your spouse for the last 6 months of the year Provide the principal home of a qualifying dependent Claim said dependent on your tax return