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