Chapter 3 - Individual taxation
Example of itemized deductions
medical expenses, state and local income taxes, property taxes, home mortgage interest, charitable contributions and etc..
Single status
must be unmarried by the end of the year (unmarried) and does not qualify as the head of the household
In order to file as a surviving spouse or qualify as a widow
-maintains a household for dependent child or stepchild -spouse died within two years of proceeding the tax year -spouse has not remarried
To file as head of household
-must be unmarried by the end of the year -U.S citizen or Resident -provide more than half the cost of maintaining a household they live in -A dependent must live in the household but does not have to be claimed or maintain a household that parent lives in
What are the two ways that determine to be claimed as a dependent?
-qualified child and qualified relative
What is the tax return of an individual?
1040 form
Gross Income - Deductions for adjusted gross income
Adjusted gross income
Itemized deductions
Certain expenses of a personal nature that are specifically allowed as deduction
Examples of Gross income
Compensations of services, interest, rent, royalties, dividends and annuities.
Reallzation
Economic concept realizing a gain or loss
If a child is a full-time student, an exemption may be claimed for the child regardless of the amount of the student's gross income of he or she meets other testes for dependency
False
If no one person contributes more than on half of the support of a dependent, the exemption may never be claimed by anyone
False
Standard deduction
Fixed amount used to simplify the computation of the tax liability
Examples of support
Food, shelter, clothing, medical and dental care, education and similar items
Married filling jointly Status
Legally married at the end of the year, must both us the same tax year and both must be U.S citizens or residence alien
Filing stauses
Married individuals filing jointly Married individuals filling seperately Single individuals Heads of households Surviving spouses
Age Test (qualified child)
Must be under the age of 19 at the end of the year or a full time student ( at least 5 months of the year) under the age of 24. If permanently and totally disabled any time during the calendar year the age test does NOT apply
What are the 4 tests that must be satisfied to be qualified as a child?
Relationship, Age, Principle Abode, and Support Test
What are the 3 tests that must be satisfied to be qualified as a relative?
Relationship, Gross Income, and Support Test
Abandoned Spouse
Still legally married at the end of the year but not together for the last 6 months; can file as head of household but a dependent must live within the household
Abode Test (qualified child)
The child has the same principle place of abode or resident with parent for more than half the taxable year
Support Test (qualified child)
The child must not provide more than half of his/her own support
Relationship Test (qualified relative)
The dependent must be a relative of the taxpayer or member of the taxpayers household for the entire year -child or decedent of a child, siblings, step siblings, parents, ancestors of parents, step-parents, in-laws
Gross Income Test (qualified relative)
The dependent must not make more than $4,050 A tax payer is allowed an exemption for each dependent whose gross income for the year is less than the personal exemption amount ($4,050)
Relationship test (qualified child)
The person has to be the child; Natural, adopted, foster, step-child, siblings, half-sibling , step-sibling and decedent of any of the above categories
Support Test (qualified relative)
The taxpayer must provide more that one-half of support -only the amount actually spent on support NOT what's available for support
Items allowed as deductions for adjusted gross income
Trade or business expenses, certain reimbursed employee expenses, Moving expenses, and Losses form sale or exchange of property.
A person who is a member of the household and lives with the taxpayer for the entire year need not to be related to the taxpayer to be claimed as a dependent
True
A self employed person is subject to the self employment tax if self employment taxable income is at least $400
True
A tax payer has the right to file a joint return for the year of which the spouse dies
True
An individual who is a qualifying child of the taxpayer or any other tax payer cannot be a qualifying relative
True
Eligible to be claimed dependents cannot claim an exemption
True
Funds used fro support which a student has borrowed from a bank must be considered as part of the student's suport
True
Gross income includes all items of income from whatever source unless specifically excluded (by the IRS)
True
If filling separately but still married each spouse must use the same tax year
True
No personal exemption amount is allowable on the return of an individual who is eligible to be claimed as a dependent on another taxpayer's return
True
The standard deduction is adjusted annually, if necessary, for inflation
True
The standard deduction is based on the filing status of the tax payer and is made up of basic standard deduction plus any additional standard deduction
True
The surviving spouse provisions do not authorize the surviving spouse to file a joint return ; they only make the joint return tax rates available
True
To arrive at adjusted gross income, all deductions specifically allowed by law are subtracted from gross income
True
To qualify for the old-age additional standard deduction, the taxpayer and/or spouse must be age 65 before the close of the year.
True- Age and blind Test
All taxpayers subtract the larger of their itemized deductions or standard deductions
True; but exception, of married but filing separately both spouses have to use either (the same) itemized or standard deductions
Head of Household Status
Unmarried individuals who maintain a household for qualifying children
Recognition
Whatever you realize you put on a tax return
Multiple support agreement
exception to the qualified relative support test which allows two or more taxpayers to contribute over half of the support of an individual - cannot be used in qualified child scenario - individual taxpayer not providing more than 1/2 suport