TAX Chapter 1/2 Standard Deduction/ Exemptions

4. Support Test

- A child must not provide more than half of his or her "support." The definition of support is broad. -"Support" includes: food, shelter, clothing, medical and dental care, education, and the like." - Items such as medical insurance premiums, childcare, toys, gifts, and vacations have been found to be includable in support, wheras life insurance premiums have been excluded. - A scholarship is not counted as support if it is received by, and used in support of, a child who is full-time student. - For items paid in cash, support is the amount paid. For NONcash items such lodging, use fair market value of item to determine the amount of support.

3. Residency Test

- Child must live with taxpayer for more than half of the year to meet this requirement. - Temporary absences are exceptions to this rule if the absences are due to education, vacation, illness, or military services.

1. Relationship Test

- Child or descendant of child (grandchild or great grandchild) - Stepchild - Eligible foster child - Brother or sister -Half-brother/half-sister - step-brother/step-sister - or descendant of any of these. - A child includes an adopted child and includes a child placed for adoption in the taxpayers household by an authorized adoption agency even if the adoption is not yet finalized. - Cousins are NOT included in definition of qualifying child.

5. Special Test Qualifying Child of One Taxpayer

- If child meets the other 4 tests and can be a qualifying child for more then one taxpayer, only ONE individual can claim exception. - The IRS lets you decide who the taxpayer claiming the exception is, if decision cannot be made, they go to the "Tie-Breaker Rule." Parent, parent with whom child has lived with for longer, parent with highest AGI.

2. Married Filing Jointly

- If married prior to December 31, one can file a joint tax return combining all income, deductions, and credits of both spouses. - The marital status of a couple is determined under laws of the state which they reside. - If spouse dies during the year, the surviving tax payer can file a joint return if the couple was married at the date of death and the surviving spouse has not remarried as of December 31 of the tax year. - If a couple is in the process of divorce but it is not yet final, they can file for a joint tax return. - If spouse is a non-resident alien at any time during the year, generally that person cannot file a joint return. This is because the non-US income of the non-resident spouse is not taxable in the US. However, if both spouses agree to subject their worldwide income to US taxation they can file a joint return.

2.) Relationship or Member of Household Test

- Must be a member of taxpayer's household for entire year or must be related in one of the following ways: child, descendant of child, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, father, mother, brother or sister of parents, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law - If someone is related to a taxpayer in any of the following ways, it is not necessary for them to live with taxpayer for full year, but it may be difficult to prove support.

4. Support Test

- Must provide over 50% of dependent support - If several dependents receive an item, allocate the cost amongst them. -When many provide support for a dependent, but not one over 50%, then one of the providers who gave more than 10% of support may be voted upon to claim exemption.

1. Single

- Not married. - If they do not qualify as either head of household or qualifying widower. - If individuals divorce on or before December 31, they may qualify for single.

3. Married Filing Separately

- Only in unusual circumstances is it advantageous for a married couple to file separate returns rather than a joint return. - A taxpayer who files married filing separately MUST show the name and social security number of his or her spouse on Form 1040 or 1040A. - The Standard Deduction can only be taken if both of them choose the standard deduction. - If one taxpayer itemized deductions, the other taxpayer must also itemize deductions even if his or her itemized deductions are less than the standard deduction.

2. Qualified Dependency Exemptions

- Since 2005, a taxpayer can claim a dependency exemption if the person is a qualified child or relative and person meets three tests: 1. Dependency Taxpayer Test - if an individual can be claimed as a dependent by someone else, then the taxpayer cannot claim a dependency exemption for that person. This includes qualifying relatives. 2. Joint-Return Test - Taxpayer cannot claim a dependency exemption for someone who files a joint return with his/her spouse. - However, if the dependent files a joint return simply to claim a refund (that is there are no tax liability involved) then dependency exemptions is allowed. 3. Citizens or Resident Test - (a) Must be a US citizen - (b) a resident of Canada or Mexico - (c) an adopted child of the taxpayer if child is a member of taxpayers household all year and the taxpayer is a US citizen or national.

Standard Deduction

- Taxpayers can deduct an amount from AGI through a standard deduction or itemized deduction. - The Standard Deduction is the sum of the basic deduction and the additional deduction: if you are blind and/or over 65 you get 1-2 additional deductions. - Standard Deduction is zero if (a) either spouse chooses to itemize (b) taxpayer is non-resident alien (c) taxpayer files for period less than 12 months. -A taxpayer can be claimed as a dependent on the tax return of another individual, the basic standard deduction for the taxpayer is limited to the greater of (a) $1,000 or (b) the taxpayers earned income plus +$350, but not for more than the basic standard deduction.

3. Gross Income Test

- The dependent must not have income greater than or equal to the amount of exemption. - For purposes of this test, gross income does not include certain items such as tax exempt interest, the nontaxable portion of Social Security Benefits, and the non-taxable portion of scholarships or fellowships

Child of Divorced or Separated 1. In most cases, a child will the qualifying child for the parent with ______? 2. However, a child will be deemed qualifying child of the non-custodial parent if all of the following are met: - Child has been in custody of either parent for more than ___3.____. - Either or both parents provided more than ___4.____ of ____4.___. - The parents are (a) _____5.____ (b) separated under a ____6.___ sepperation agreement (c) living apart at all times during the last ___7.__ of the year. . The ___8.___ of ___8.___ for 2014 states that the noncustodial parent can claim the child as a dependent or the custodial parent signs a __9.____ document specifying the child will not be claimed as dependent.

1. Custody 2. Nevermind 3. half of the year 4. half of support 5. divorced or separated 6. written 7. half 6 months 8. Decree of Separation 9. written

Two Types of Exemptions

1. Personal Exemptions 2. Qualifying Dependency Exemptions

5 Qualifying Child Tests

1. Relationship Test 2. Age Test 3. Residency Test 4. Support Test 5. Special Test for Qualifying child of more than one taxpayer

Filing Statuses

1. Single 2. Married Filing Jointly 3. Married Filing Separately 4. Head of Household 5. Qualifying Widower

4 Qualifying Relative Tests

1.) Not Qualifying Child Test 2.) Relationship or Member of Household Test 3.) Gross Income Test 4.) Support Test

2. Age Test

At end of the tax year, child must be one of the following: - Under the age of 19 - Under 24 and full-time student. A full time student is a person who is in school in 5 calendar months. - Totally and permanently disabled regardless of age. - For years after 2008, child must be younger than person claiming dependency.

5. Qualifying Widower

If a spouse dies during the tax year, the surviving spouse usually can file for a joint return for 2 years following the death if eligible conditions apply: - taxpayer was eligible to file a joint return in the year the spouse died. - taxpayer did not remarry before the end of the tax year. - taxpayer paid for more than half the costs of keeping up household. - the household was the principal place of abode for the entire year (except for temporary absences) of both the taxpayer and the child, stepchild, or adopted child who can be claimed as dependent by taxpayer.

1.) Not Qualifying Child Test

If child is a qualifying child or the qualifying child of another taxpayer, he or she cannot be your qualifying relative.

4. Head of Household

To qualify for Head of Household: - a taxpayer must be unmarried at the end of the year - be a US citizen or resident throughout the year. - must not be a qualifying widower. - must maintain a household that is the principal place of abode of a qualifying person for more than one half the year. Temporary absences such as attending school does not disqualify this person. Support Payments: rent, real-estate taxes, home insurance, utilities, maintenance & repair, and food provided. Non-qualifying Costs: personal expenditures! - A taxpayers parent living in a household seperate from the taxpayer may qualify for HoH if the taxpayer pays for more than half of the costs of the household where parents live. - A married individual who lives apart from his/her spouse for at least 6 months of year cannot qualify - A qualifying relative who is dependent only because that person lived with taxpayer for full year does not qualify person as Head of Household.

1. Personal Exemptions

You can only claim once; amount is linked to inflation; for 2014, it was $3,950 per individual.