Chapter 1 - Filing Requirements, Exemptions and Filing Status

Maximum amount of self employment $ that requires a taxpayer to report

$400 *$600 for employer

Filing Status is used to

*Determine filing requirements *Standard Deductions *Tax The taxpayer will select the most advantageous filing status based on being married or unmarried as of the last day of the tax year.

Single Status

*Unmarried *Separated from spouse by divorce or separate maintenance agreement *Not qualified for any other filing status *Widowed before January 1, 2016 or not remarried in 2016 To isolate; to choose

Dependent Exemption can only be claimed for a Qualifying Child or Qualifying Relative through meeting all 3 tests * a person cannot be claimed as a dependent unless that person is a "Qualifying Child" or a "Qualifying Relative"

1. Dependent Taxpayer Test -only can be claimed as 1 dependent -if filing jointly and spouse is claimed as a dependent then no one else can be claimed as a dependent 2. Joint Resident Test -generally a married person cannot be claimed as a dependent is they file a joint return -if a joint return is filed but they do not meet the tax liability, then they can be claimed as dependents 3. Citizen or Resident Test -generally a person can not be claimed as a Dependent unless the person is: a. US citizen, b. US resident alien, c. US national, d. resident of Canada or Mexico for some part of the year - if the taxpayer adopts a child who is not a.-d. or legal adoption ; that child must have lived with the taxpayer for the full year * US national- not a citizen but has allegiance to the US

What 3 requirements determine if a tax payer must file

1. Gross Income 2. Filing Status 3. Age * > 65 years *Blind * even if not required a taxpayer should file if any federal income tax is withheld or is qualified for a refundable credit

Qualifying Relative must meet 4 tests * can include children who do not meet qualifying child test * no age limit

1. Not a Qualifying Child Test -unless their parent does not have requirement to file and doesn't their child can become a qualifying relative of a supporter 2. Relationship or Member of Household Test - must be related or lived with the taxpayer for a entire year; special absence exceptions * the 30 min born/death thing also applies here *this person can never be the spouse * Stupid Local Law violation thing -entire year of living can be avoided if relative falls into any of the following: see page 12 *Cousin seems to be the one excemption 3. Gross Income Test 4. Support Test

Qualifying Child must meet six tests *for a qualifying child there is no gross income test

1. Relationship Test -must be taxpayers Son, Daughter, Stepchild, Adopted Child, Eligible Foster Child or descendant of any of them (grandkid) -also could be taxpayers Brother, Sister, 1/2 Brother/Sister, Step Brother/Sister, or descendant of any of them (niece/nephew) 2. Age Test -under the age of 19 at the end of the year and younger than the taxpayer (or spouse if filing jointly) -a full-time student during 5 months of the year and under the age of 24 at eh end of the year and younger than the taxpayer (or spouse if filing jointly) -permanently and totally disabled at any time, regardless of age 3. Residency Test -must have the same residence as the the taxpayer for at least 1/2 year *acceptations for divorced, kidnapped, birth death, ect * if child was born even 30 mins into year; gets full claim -Divorced/ Separated parents - the custodial parent has >nights with child or HGI -non-custodial parents dependent benefit if: a. only been divorces, separated, ect for 6 months b. child gets 1/2 of their support from that parent c. custodial parent writes a agreement to not get dependent or exemption (Form 8332) 4. Support Test - > 1/2 support comes from the parent during the year 5. Joint Test -child cannot file a joint return for the year * does not apply if the child & their spouse file a joint return merely to claim a refund 6. Special Rule for qualifying child of > 1 person - sometimes a child passes all previous 5 tests for 2 parents: any one parent can choose -that custodial parent can get ALL the following credits: a. Dependency Exemption b. Head of Household filing states c. Child Tax Credit d. Earned Income Credit (EIC) f. Child and Dependent Care Credit * can only be dived in divorced, separated or never married * if non-custodial claims only can get Exemption and Child Tax Credit; nothing else * if taxpayer and other persons cannot agree who gets benefits a Tiebreaker Rule(s) is followed

Tiebreaker Rule(s) for Qualifying Child

1. if only one of the persons is the child parent; the child is a qualifying child for that parent 2. if the parents file a joint return together & can claim the child as a qualifying child, both parents get it 3. parents do not file a joint return; parent with most time get child * if = time: qualifying child goes to parent with >AGI 4. if no parent can claim child as qualifying child the child is treated as a qualifying child for the person with >AGI 5. if a parent can claim the child, but does not the qualifying child goes to parent with >AGI

Two typed of Exemptions

1.Personal- one exemption is allowed for each taxpayer and if married, one for the spouse 2. Dependent- if the taxpayer is eligible to be a Dependent that they cannot claim their exemption

If a married filing separately is chosen, the taxpayer:

>Cannot claim the standard deduction if the spouse itemizes his or her deductions. If the standard deduction is claimed, it is half the amount allowed on a joint return >Cannot take the credit for child and dependent care expenses >Cannot take the earned income credit >Cannot take the credit or exclusion for adoption expenses >Cannot take the education credit >Cannot deduct interest paid on qualified student loans >Cannot exclude interest income from qualified US savings bonds used for higher education expenses >Cannot take the credit for the elderly or the disabled unless he or she lived apart form the spouse for the entire year. >Cannot take the tuition and fees deductions >the capital loss deduction limit is $1500 >May have to include, as taxable income, more of his or her social security benefits than would be included on a joint return.

Considered to have lived together even if temporary absences for:

>Illness >Education >Military Service >Vacation >Business

Married Filing Separately status

A married couple may choose this status if: * They want to be responsible for their own tax * Do not agree to file jointly * If it results in a lower tax than married filing jointly

Head of Household Status

A taxpayer may be able to file as head of household if he or she is not married or is "considered unmarried" on the last day of the year. To qualify, the taxpayer must have paid more than half the cost of keeping up a home for the year and a qualifying person must have lived with him or her in that home for more than half the year.

Last Day to file a return

April 15 *unless it falls on a weekend or legal holiday * can file for a 6 month extension, but you still must pay the tax by April 15

Child of boyfriend/girlfriend

Do not qualify a taxpayer as head of household

Death or Birth

If the taxpayer provides more than half the cost of keeping up the home during the period the person lived, they may still claim HH even if: * Dependent is born during the year * Dependent dies during the year

The 5 Filing Statuses

Single Head of Household Married filing Jointly Married filing separately Qualifying Widow(er)

Married Filing Jointly status

Taxpayer is married and the spouse agrees to file jointly * Can be used even if only one spouse has income * Combine income of both spouses * Deduct combine expenses * Usually results in the lowest tax

Define Gross Income

all income the taxpayer received in the form of money, goods, property, and services that is not exempt from tax * also includes income from sources outside the US, even if part or all can be excluded