liberty tax service online basic income tax course lesson 2

Liberty Tax Service Online Liberty Tax Service Online Basic Income Tax CourseBasic Income Tax Course

Lesson 2Lesson 2

Instructor: Julie ElliottInstructor: Julie [email protected] [email protected]

Moderator: Meladie CroyModerator: Meladie [email protected]@hotmail.com

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 1HOMEWORK 1: Use the appropriate Filing Requirement Table : Use the appropriate Filing Requirement Table

to determine who has to file. Yes or No.to determine who has to file. Yes or No.1.1. Ed’s filing status is single and in 2009 he was 54 years old. Ed’s filing status is single and in 2009 he was 54 years old.

His gross income was $9,050 and he has withholding of His gross income was $9,050 and he has withholding of $450. $450.

2.2. Jane’s filing status is qualifying widow(er) with dependent Jane’s filing status is qualifying widow(er) with dependent child. She was 42 years old in 2009 and her gross income child. She was 42 years old in 2009 and her gross income was $14,350. was $14,350.

3.3. Dick and Sally’s filing status is married, joint return. Dick Dick and Sally’s filing status is married, joint return. Dick was 68 and Sally was 61 years old in 2009. Their gross was 68 and Sally was 61 years old in 2009. Their gross income was $18,820 income was $18,820

4.4. Sam’s filing status is head of household. He was 29 years Sam’s filing status is head of household. He was 29 years old in 2009 and his gross income was $12,500. old in 2009 and his gross income was $12,500.

5.5. Terry (single, age 17 in 2009) is claimed as a dependent by Terry (single, age 17 in 2009) is claimed as a dependent by her parents. Her gross income was $5,750. her parents. Her gross income was $5,750.

6.6. Rufus (age 60 in 2009) is single and his son can claim him Rufus (age 60 in 2009) is single and his son can claim him as a dependent. His only income was $2,250 in bank as a dependent. His only income was $2,250 in bank interest. interest.

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 1HOMEWORK 1: Use the appropriate Filing Requirement Table : Use the appropriate Filing Requirement Table

to determine who has to file. Yes or No.to determine who has to file. Yes or No.1.1. Ed’s filing status is single and in 2009 he was 54 years old. Ed’s filing status is single and in 2009 he was 54 years old.

His gross income was $9,050 and he has withholding of His gross income was $9,050 and he has withholding of $450. $450. N (But he should because taxes have been withheld)N (But he should because taxes have been withheld)

2.2. Jane’s filing status is qualifying widow(er) with dependent Jane’s filing status is qualifying widow(er) with dependent child. She was 42 years old in 2009 and her gross income child. She was 42 years old in 2009 and her gross income was $14,350. was $14,350. NN

3.3. Dick and Sally’s filing status is married, joint return. Dick Dick and Sally’s filing status is married, joint return. Dick was 68 and Sally was 61 years old in 2009. Their gross was 68 and Sally was 61 years old in 2009. Their gross income was $18,820 income was $18,820 NN

4.4. Sam’s filing status is head of household. He was 29 years Sam’s filing status is head of household. He was 29 years old in 2009 and his gross income was $12,500. old in 2009 and his gross income was $12,500. YY

5.5. Terry (single, age 17 in 2009) is claimed as a dependent by Terry (single, age 17 in 2009) is claimed as a dependent by her parents. Her gross income was $5,750. her parents. Her gross income was $5,750. YY

6.6. Rufus (age 60 in 2009) is single and his son can claim him Rufus (age 60 in 2009) is single and his son can claim him as a dependent. His only income was $2,250 in bank as a dependent. His only income was $2,250 in bank interest. interest. YY

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 1HOMEWORK 1: Use the appropriate Filing Requirement Table to : Use the appropriate Filing Requirement Table to

determine who has to file. Yes or No.determine who has to file. Yes or No.

7.7. Sonia (age 67 in 2009) is single, received nontaxable social Sonia (age 67 in 2009) is single, received nontaxable social security of $9,000 and made $750 net from selling Christmas security of $9,000 and made $750 net from selling Christmas ornaments at craft shows. ornaments at craft shows.

8.8. Barbara (single, age 16 in 2009) can be claimed by her parents as Barbara (single, age 16 in 2009) can be claimed by her parents as a dependent. In 2009, Barbara earned wages of $680 as a a dependent. In 2009, Barbara earned wages of $680 as a dishwasher and $620 from her job as a clerk. She also had a dishwasher and $620 from her job as a clerk. She also had a savings account, which earned interest of $300. savings account, which earned interest of $300.

9.9. Barry (single, age 17 in 2009) can be claimed by his parents as a Barry (single, age 17 in 2009) can be claimed by his parents as a dependent. In 2009, Barry earned wages of $5,650 working at a dependent. In 2009, Barry earned wages of $5,650 working at a fast food restaurant and he had no other income. fast food restaurant and he had no other income.

10.10. Jackie was married in 2009 but chose the filing status married, Jackie was married in 2009 but chose the filing status married, separate return. In 2009, she had a gross income of $3,700. separate return. In 2009, she had a gross income of $3,700.

11.11. Len and Marge (ages 69 and 70 in 2009) will file a married joint Len and Marge (ages 69 and 70 in 2009) will file a married joint return. Len received wages of $10,500 and Marge received a return. Len received wages of $10,500 and Marge received a taxable pension of $8,000. They had a joint bank account, which taxable pension of $8,000. They had a joint bank account, which paid them interest of $2,000 and Marge received $2,500 social paid them interest of $2,000 and Marge received $2,500 social security. security.

12.12. Lorna (age 23 in 2009) is married but can be claimed as a Lorna (age 23 in 2009) is married but can be claimed as a dependent by her parents. Her earned income (wages) in 2009 dependent by her parents. Her earned income (wages) in 2009 was $5,750. was $5,750.

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 1HOMEWORK 1: Use the appropriate Filing Requirement Table to : Use the appropriate Filing Requirement Table to

determine who has to file. Yes or No.determine who has to file. Yes or No.

7.7. Sonia (age 67 in 2009) is single, received nontaxable social Sonia (age 67 in 2009) is single, received nontaxable social security of $9,000 and made $750 net from selling Christmas security of $9,000 and made $750 net from selling Christmas ornaments at craft shows. ornaments at craft shows. YY

8.8. Barbara (single, age 16 in 2009) can be claimed by her parents as Barbara (single, age 16 in 2009) can be claimed by her parents as a dependent. In 2009, Barbara earned wages of $680 as a a dependent. In 2009, Barbara earned wages of $680 as a dishwasher and $620 from her job as a clerk. She also had a dishwasher and $620 from her job as a clerk. She also had a savings account, which earned interest of $300. savings account, which earned interest of $300. NN

9.9. Barry (single, age 17 in 2009) can be claimed by his parents as a Barry (single, age 17 in 2009) can be claimed by his parents as a dependent. In 2009, Barry earned wages of $5,650 working at a dependent. In 2009, Barry earned wages of $5,650 working at a fast food restaurant and he had no other income. fast food restaurant and he had no other income. N N

10.10. Jackie was married in 2009 but chose the filing status married, Jackie was married in 2009 but chose the filing status married, separate return. In 2009, she had a gross income of $3,700. separate return. In 2009, she had a gross income of $3,700. YY

11.11. Len and Marge (ages 69 and 70 in 2009) will file a married joint Len and Marge (ages 69 and 70 in 2009) will file a married joint return. Len received wages of $10,500 and Marge received a return. Len received wages of $10,500 and Marge received a taxable pension of $8,000. They had a joint bank account, which taxable pension of $8,000. They had a joint bank account, which paid them interest of $2,000 and Marge received $2,500 social paid them interest of $2,000 and Marge received $2,500 social security. security. NN

12.12. Lorna (age 23 in 2009) is married but can be claimed as a Lorna (age 23 in 2009) is married but can be claimed as a dependent by her parents. Her earned income (wages) in 2009 dependent by her parents. Her earned income (wages) in 2009 was $5,750. was $5,750. Y Y

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 2HOMEWORK 2: None of the following taxpayers can be claimed as a : None of the following taxpayers can be claimed as a

dependent. What is the gross income level at which each must file dependent. What is the gross income level at which each must file a return?a return?

1.1. Married (living together), joint return, both age 65 in 2009. Married (living together), joint return, both age 65 in 2009. 2.2. Married (living together), joint return, both age 63 in 2009. Married (living together), joint return, both age 63 in 2009. 3.3. Head of household, age 65 in 2009.Head of household, age 65 in 2009. 4.4. Qualifying Widow(er) with dependent child, age 64 in 2009. Qualifying Widow(er) with dependent child, age 64 in 2009. 5.5. Single, age 23 in 2009. Single, age 23 in 2009. 6.6. Married, separate return, age 65 in 2009. Married, separate return, age 65 in 2009. 7.7. Single, turned age 65 on January 1, 2010. Single, turned age 65 on January 1, 2010. 8.8. Married (living together), joint return, one spouse age 67 and one Married (living together), joint return, one spouse age 67 and one

spouse age 58 in 2009. spouse age 58 in 2009. 9.9. Head of household, age 19 in 2009. Head of household, age 19 in 2009. 10.10. Single, age 87 in 2009. Single, age 87 in 2009.

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 2HOMEWORK 2: None of the following taxpayers can be claimed as a : None of the following taxpayers can be claimed as a

dependent. What is the gross income level at which each must file a dependent. What is the gross income level at which each must file a return?return?

1.1. Married (living together), joint return, both age 65 in 2009. Married (living together), joint return, both age 65 in 2009. $20,900$20,900

2.2. Married (living together), joint return, both age 63 in 2009. Married (living together), joint return, both age 63 in 2009. $18,700$18,7003.3. Head of household, age 65 in 2009.Head of household, age 65 in 2009. $13,400$13,4004.4. Qualifying Widow(er) with dependent child, age 64 in 2009. Qualifying Widow(er) with dependent child, age 64 in 2009. $15,050$15,0505.5. Single, age 23 in 2009. Single, age 23 in 2009. $9,350$9,3506.6. Married, separate return, age 65 in 2009. Married, separate return, age 65 in 2009. $3,650$3,6507.7. Single, turned age 65 on January 1, 2010. Single, turned age 65 on January 1, 2010. $10,750$10,7508.8. Married (living together), joint return, one spouse age 67 and one Married (living together), joint return, one spouse age 67 and one

spouse age 58 in 2009. spouse age 58 in 2009. $19,800$19,8009.9. Head of household, age 19 in 2009. Head of household, age 19 in 2009. $12,000$12,000 10.10. Single, age 87 in 2009. Single, age 87 in 2009. $10,750$10,750

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Questions & AnswersQuestions & Answers

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Chapter 1 HomeworkChapter 1 HomeworkHOMEWORK 3HOMEWORK 3: : Joshua S. Scott, (344-55-6677, born 3/16/1960) is single and lives at 1566 Joshua S. Scott, (344-55-6677, born 3/16/1960) is single and lives at 1566

Piney Road, Mason City, IA 50401. He is a steel worker and his Form W-2 Piney Road, Mason City, IA 50401. He is a steel worker and his Form W-2 follows. He has no other income. Prepare a 2009 return for him.follows. He has no other income. Prepare a 2009 return for him.

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Chapter 2: EXEMPTIONS AND Chapter 2: EXEMPTIONS AND DEPENDENTSDEPENDENTS

Chapter ContentChapter Content Personal ExemptionsPersonal Exemptions Dependent ExemptionsDependent Exemptions Five Qualifying Child TestsFive Qualifying Child Tests Four Qualifying Relative TestsFour Qualifying Relative Tests Exemption Phase-outExemption Phase-out Key IdeasKey Ideas

ObjectivesObjectives Understand the Types of ExemptionsUnderstand the Types of Exemptions Define the Qualifying Child TestsDefine the Qualifying Child Tests Define the Qualifying Relative TestsDefine the Qualifying Relative Tests Understand the Phase-out of ExemptionsUnderstand the Phase-out of Exemptions

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1.1. Exemptions reduce taxable income.Exemptions reduce taxable income.2.2. Two types of exemptions:Two types of exemptions:

a)a) Personal exemptionsPersonal exemptionsb)b) Exemptions for dependents.Exemptions for dependents.

3.3. Dollar amount adjusted each year for inflation. Dollar amount adjusted each year for inflation. The exemption amount for 2009 is $3,650.The exemption amount for 2009 is $3,650.

4.4. Each person claimed as an exemption must Each person claimed as an exemption must have a valid social security number or other have a valid social security number or other valid taxpayer identification number.valid taxpayer identification number.

EXEMPTIONSEXEMPTIONS

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EXEMPTIONSEXEMPTIONS

Form 1040 Page 1Form 1040 Page 1

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PERSONAL EXEMPTIONSPERSONAL EXEMPTIONSGenerally, ONE exemption can be claimed for yourself Generally, ONE exemption can be claimed for yourself

unless you can be claimed as a dependent by someone unless you can be claimed as a dependent by someone else.else.

Rules for your spouse:Rules for your spouse:1.1. Never considered your dependent.Never considered your dependent.2.2. Can claim ONE exemption for your spouse if filing MFJ.Can claim ONE exemption for your spouse if filing MFJ.3.3. If filing MFS, you can claim ONE exemption for your If filing MFS, you can claim ONE exemption for your

spouse only if spouse has no gross income, filed no tax spouse only if spouse has no gross income, filed no tax return, and was not the dependent of another return, and was not the dependent of another taxpayer.taxpayer.

4.4. If you are If you are divorced or legally separated divorced or legally separated by the end of by the end of the tax year, you cannot claim former spouse as the tax year, you cannot claim former spouse as exemption.exemption.

5.5. If spouse If spouse died died during the year, you can generally claim during the year, you can generally claim the exemption for deceased spouse.the exemption for deceased spouse.

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EXEMPTIONS FOR DEPENDENTSEXEMPTIONS FOR DEPENDENTSYou are allowed ONE exemption for each person you can You are allowed ONE exemption for each person you can

claim as a dependent. The term dependent means a claim as a dependent. The term dependent means a qualifying child qualifying child or a or a qualifying relativequalifying relative..

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RULES FOR CLAIMING A DEPENDENTRULES FOR CLAIMING A DEPENDENTDependent Taxpayer TestDependent Taxpayer Test

Person cannot claim a dependent if they can be claimed as a Person cannot claim a dependent if they can be claimed as a dependent by another person.dependent by another person.

A person filing a joint return and their spouse can be A person filing a joint return and their spouse can be claimed as a dependent by someone else cannot claim any claimed as a dependent by someone else cannot claim any dependents on their return.dependents on their return.

Joint Return TestJoint Return TestGenerally you cannot claim a married person as a dependent Generally you cannot claim a married person as a dependent

if he or she files a joint return. Unless the joint return is if he or she files a joint return. Unless the joint return is being filed only to claim a refund and not tax liability being filed only to claim a refund and not tax liability would exist for either spouse on separate returns.would exist for either spouse on separate returns.

Citizen or Resident TestCitizen or Resident TestA person cannot be claimed as a dependent unless that A person cannot be claimed as a dependent unless that

person is a U.S. citizen, U.S. resident, U.S. national, or a person is a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico, for some part of the year.resident of Canada or Mexico, for some part of the year.

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JOINT RETURN TEST – PROBLEM 1JOINT RETURN TEST – PROBLEM 1

Slade’s son and his wife each had less than $3,650 Slade’s son and his wife each had less than $3,650 of wages and no unearned income. Neither is of wages and no unearned income. Neither is required to file a tax return. Taxes were taken required to file a tax return. Taxes were taken out of their pay, so they filed a joint return to out of their pay, so they filed a joint return to get a refund. Is Slade disqualified from claiming get a refund. Is Slade disqualified from claiming their exemptions just because they filed a joint their exemptions just because they filed a joint return?return?

Yes or No?Yes or No?

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JOINT RETURN TEST – PROBLEM 1JOINT RETURN TEST – PROBLEM 1

Slade’s son and his wife each had less than $3,650 Slade’s son and his wife each had less than $3,650 of wages and no unearned income. Neither is of wages and no unearned income. Neither is required to file a tax return. Taxes were taken required to file a tax return. Taxes were taken out of their pay, so they filed a joint return to out of their pay, so they filed a joint return to get a refund. Is Slade disqualified from claiming get a refund. Is Slade disqualified from claiming their exemptions just because they filed a joint their exemptions just because they filed a joint return?return?

NoNo

Slade is not disqualified from claiming their Slade is not disqualified from claiming their exemptions just because they filed a joint exemptions just because they filed a joint return.return.

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QUALIFYING CHILDQUALIFYING CHILD

The FIVE TESTS must The FIVE TESTS must ALLALL be met for a child to be met for a child to be your qualifying child. The five tests are:be your qualifying child. The five tests are:

1.1. RelationshipRelationship2.2. AgeAge3.3. ResidencyResidency4.4. SupportSupport5.5. Special test for qualifying child of more Special test for qualifying child of more

than one personthan one person

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Relationship Test (Test 1)Relationship Test (Test 1)1.1. Person must be your son, daughter, stepchild, Person must be your son, daughter, stepchild,

eligible foster child, or a descendant of any of eligible foster child, or a descendant of any of them, or brother, sister, half brother, half sister, them, or brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any stepbrother, stepsister, or a descendant of any of any of them.of any of them.

2.2. An adopted child is always treated as your own An adopted child is always treated as your own child. The term adopted child includes a child child. The term adopted child includes a child who was lawfully placed with you for legal who was lawfully placed with you for legal adoption.adoption.

1.1. An eligible foster child is an individual who is An eligible foster child is an individual who is placed with you by an authorized placement placed with you by an authorized placement agency or by judgment, decree, or other order of agency or by judgment, decree, or other order of any court of competent jurisdiction.any court of competent jurisdiction.

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Age Test (Test 2)Age Test (Test 2)

1.1. Person must be under age 19 at the end of the Person must be under age 19 at the end of the year.year.

2.2. A full-time student under age 24 at the end of A full-time student under age 24 at the end of the year, and younger than you (or your spouse the year, and younger than you (or your spouse if filing jointly) (To qualify, your child must be a if filing jointly) (To qualify, your child must be a student during some part of each of any 5 student during some part of each of any 5 calendar months of the year).calendar months of the year).

3.3. Permanently and totally disabled at any time Permanently and totally disabled at any time during the year, regardless of age.during the year, regardless of age.

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AGE TEST – PROBLEM 2AGE TEST – PROBLEM 2

Beth’s son turned 19 on November 30. He was Beth’s son turned 19 on November 30. He was not disabled or a full-time student. Does he not disabled or a full-time student. Does he meet the age test?meet the age test?


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AGE TEST – PROBLEM 2AGE TEST – PROBLEM 2

Beth’s son turned 19 on November 30. He was Beth’s son turned 19 on November 30. He was not disabled or a full-time student. Does he not disabled or a full-time student. Does he meet the age test?meet the age test?

NoNo

Beth’s son does not meet the age test Beth’s son does not meet the age test because at the end of the year he was not because at the end of the year he was not UNDER age 19.UNDER age 19.

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QUALIFYING CHILDQUALIFYING CHILDResidency Test (Test 3)Residency Test (Test 3)1.1. Person must have lived with you for more than half Person must have lived with you for more than half

of the year. Exceptions apply for temporary of the year. Exceptions apply for temporary absences, children who were born or died during the absences, children who were born or died during the year, kidnapped children, and children of divorced or year, kidnapped children, and children of divorced or separated parents.separated parents.

2.2. A person is considered to have lived with you during A person is considered to have lived with you during periods of time when you, or both, are temporarily periods of time when you, or both, are temporarily absent due to special circumstances such as illness, absent due to special circumstances such as illness, education, business, vacation, or military service.education, business, vacation, or military service.

3.3. A child who was born or died during the year is A child who was born or died during the year is treated as having lived with you all year if your treated as having lived with you all year if your home was the child’s home the entire time he or she home was the child’s home the entire time he or she was alive during the year.was alive during the year.

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QUALIFYING CHILDQUALIFYING CHILDResidency Test (Test 3)Residency Test (Test 3)

4.4. A child will be treated as a qualifying child of his or A child will be treated as a qualifying child of his or her noncustodial parent if all of the following apply.her noncustodial parent if all of the following apply.a.a. The parents are divorced or legally separated under The parents are divorced or legally separated under

a decree of divorce or separate maintenance, are a decree of divorce or separate maintenance, are separated under a written separation agreement, or separated under a written separation agreement, or lived apart at all times during the last 6 months of lived apart at all times during the last 6 months of the year.the year.

b.b. The child received over half of his or her support for The child received over half of his or her support for the year from the parents.the year from the parents.

c.c. The child is in the custody of one or both parents for The child is in the custody of one or both parents for more than half of the year.more than half of the year.

d.d. A decree or separate maintenance or written A decree or separate maintenance or written separation agreement that applies to 2009 provides separation agreement that applies to 2009 provides that the noncustodial parent can claim the child as a that the noncustodial parent can claim the child as a dependent or the custodial parent signs a written dependent or the custodial parent signs a written declaration (such as Form 8332) that he or she will declaration (such as Form 8332) that he or she will not claim the child as a dependent for the year.not claim the child as a dependent for the year.

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RESIDENCY TEST – PROBLEM 3RESIDENCY TEST – PROBLEM 3

Charles and Ellen Roper are divorced. Ellen Charles and Ellen Roper are divorced. Ellen has custody of their child, Erika. They both has custody of their child, Erika. They both provide all the support for their daughter. provide all the support for their daughter. Ellen is giving Charles the exemption for Ellen is giving Charles the exemption for Erika. What form must Charles must Erika. What form must Charles must attach to his return?attach to his return?

a)a) Form 8879Form 8879b)b) Form 8332Form 8332c)c) Form 8453Form 8453

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RESIDENCY TEST – PROBLEM 3RESIDENCY TEST – PROBLEM 3Charles and Ellen Roper are divorced. Ellen has Charles and Ellen Roper are divorced. Ellen has

custody of their child, Erika. They both provide custody of their child, Erika. They both provide all the support for their daughter. Ellen is all the support for their daughter. Ellen is giving Charles the exemption for Erika. What giving Charles the exemption for Erika. What form must Charles must attach to his return?form must Charles must attach to his return?

b)b) Form 8332Form 8332

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Support Test (Test 4)Support Test (Test 4)

To meet this test, the child cannot have provided To meet this test, the child cannot have provided more than half of his or her own support for the more than half of his or her own support for the year. This test is different from the support test year. This test is different from the support test to be a qualifying relative, which is described to be a qualifying relative, which is described later.later.

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Special Test for qualifying child of more than Special Test for qualifying child of more than one Person (Test 5)one Person (Test 5)

1. If a child meets the relationship, age, residence, and 1. If a child meets the relationship, age, residence, and support test to be a qualifying child of more than support test to be a qualifying child of more than one person, only one person can actually treat the one person, only one person can actually treat the child as a qualifying child.child as a qualifying child.

2. If you and the other person cannot agree on who will 2. If you and the other person cannot agree on who will claim the child and more than one person files a claim the child and more than one person files a return with the same child, the IRS will disallow all return with the same child, the IRS will disallow all but one of the claims using the tie-breaker rules.but one of the claims using the tie-breaker rules.

Note: If your qualifying child is not a qualifying child for Note: If your qualifying child is not a qualifying child for anyone else, this test does not apply to you.anyone else, this test does not apply to you.

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QUALIFYING CHILDQUALIFYING CHILDTable 2-2. When More Than One Person Files a Return Claiming the Same Qualifying Child (Tie-Breaker Rule)

Caution.Caution. If a child is treated as the qualifying child of the noncustodial parent under the rules for children of If a child is treated as the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents, see divorced or separated parents, see Applying this special test to divorced or separated parents.

IF more than one person files a return IF more than one person files a return claiming the same qualifying child and . . .claiming the same qualifying child and . . .

THEN the child will be treated as the THEN the child will be treated as the qualifying child of the. . .qualifying child of the. . .

only one of the persons is the child's parent,only one of the persons is the child's parent, parent.parent.

two of the persons are parents of the child and two of the persons are parents of the child and they do not file a joint return together,they do not file a joint return together,

parent with whom the child lived for the longer parent with whom the child lived for the longer period of time during the year.period of time during the year.

two of the persons are parents of the child, they two of the persons are parents of the child, they do not file a joint return together, and the child do not file a joint return together, and the child lived with each parent the same amount of time lived with each parent the same amount of time during the year, during the year,

parent with the higher adjusted gross income parent with the higher adjusted gross income (AGI).(AGI).

none of the persons are the child's parent,none of the persons are the child's parent, person with the highest AGI.person with the highest AGI.

http://www.irs.gov/publications/p17/ch03.html#publink100032233

http://www.irs.gov/publications/p17/ch03.html#publink100032233

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Applying this special test to Applying this special test to divorced or separated parents. divorced or separated parents.

If a child is treated as the qualifying If a child is treated as the qualifying child of the noncustodial parent child of the noncustodial parent under the rules for divorced or under the rules for divorced or separated parents described earlier, separated parents described earlier, the noncustodial parent can claim an the noncustodial parent can claim an exemption and the child tax credit for exemption and the child tax credit for the child. But the noncustodial parent the child. But the noncustodial parent cannot claim the child as a qualifying cannot claim the child as a qualifying child for head of household filing child for head of household filing status, the credit for child and status, the credit for child and dependent care expenses, or the dependent care expenses, or the earned income credit.earned income credit.


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If the child is the qualifying child of If the child is the qualifying child of more than one other person, ONLY more than one other person, ONLY one of those persons can claim the one of those persons can claim the child as a qualifying child for head of child as a qualifying child for head of household filing status, the credit for household filing status, the credit for child and dependent care expenses, child and dependent care expenses, and the earned income credit. and the earned income credit.

No other person can claim any of these No other person can claim any of these three tax benefits unless he or she three tax benefits unless he or she has a different qualifying child. If you has a different qualifying child. If you and any other person file a return and any other person file a return claiming the child as a qualifying claiming the child as a qualifying child for any of these tax benefits, child for any of these tax benefits, the IRS will disallow all but one of the the IRS will disallow all but one of the claims using the tiebreaker rule in claims using the tiebreaker rule in Table 2-2.Table 2-2.

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QUALIFYING RELATIVEQUALIFYING RELATIVE

The FOUR TESTS must ALL be met for you to The FOUR TESTS must ALL be met for you to claim an exemption for a person to be your claim an exemption for a person to be your qualifying relative.qualifying relative.

The four qualifying relative tests are:The four qualifying relative tests are:1. NOT a qualifying child test,1. NOT a qualifying child test,2. Member of household or relationship 2. Member of household or relationship test,test,3. Gross income test, and3. Gross income test, and4. Support test.4. Support test.

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Not a Qualifying Child Test (Test 1)Not a Qualifying Child Test (Test 1)

A child cannot be your qualifying relative if the child A child cannot be your qualifying relative if the child is your qualifying child or the qualifying child of is your qualifying child or the qualifying child of any other taxpayerany other taxpayer..

Example: Your 2-year-old son lives with your Example: Your 2-year-old son lives with your parents and meets all the tests to be their parents and meets all the tests to be their qualifying child. He is not your qualifying relative.qualifying child. He is not your qualifying relative.

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Qualifying Relative Qualifying Relative

Not a Qualifying Child Test (Test 1)Not a Qualifying Child Test (Test 1)An individual is not a qualifying child of “any other taxpayer” An individual is not a qualifying child of “any other taxpayer”

if the individual’s parent (or other person with respect to if the individual’s parent (or other person with respect to whom the individual is defined as a qualifying child):whom the individual is defined as a qualifying child): Is not required to, and does not, file an income tax Is not required to, and does not, file an income tax return, orreturn, orFiles an income tax return solely to obtain a refund of Files an income tax return solely to obtain a refund of withheld income taxeswithheld income taxes

4242

Qualifying Relative Qualifying Relative Not a Qualifying Child Test (Test 1)Not a Qualifying Child Test (Test 1) Example: Jack is single and supports as Example: Jack is single and supports as

members of the household his girlfriend Mary, members of the household his girlfriend Mary, and Mary’s 3-year-old daughter. Mary and her and Mary’s 3-year-old daughter. Mary and her daughter lived all year with Jack. Mary has no daughter lived all year with Jack. Mary has no gross income and she is not required to file an gross income and she is not required to file an income tax return. Because Mary does income tax return. Because Mary does notnot have have a filing requirement and a filing requirement and did notdid not file an income file an income tax return, Mary’s daughter is not treated as a tax return, Mary’s daughter is not treated as a qualifying child of Maryqualifying child of Mary or any other taxpayer, or any other taxpayer, and Jackand Jack may claim the child as his may claim the child as his qualifying relative, provided all other qualifying relative, provided all other requirements are met.requirements are met.

4343


Member of Household or Relationship Test (Test 2)Member of Household or Relationship Test (Test 2)A person must either live with you all year as a member of A person must either live with you all year as a member of

your household, or be related to you in one of the ways your household, or be related to you in one of the ways listed below who do not have to live with you.listed below who do not have to live with you.aa. If the person is your child, stepchild, eligible foster child, . If the person is your child, stepchild, eligible foster child,

brother, sister, half brother, half sister, stepbrother, stepsister, brother, sister, half brother, half sister, stepbrother, stepsister, father, mother, grandparent, stepfather, stepmother, son-in-father, mother, grandparent, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law or a descendent of these they do not have to law, sister-in-law or a descendent of these they do not have to live with you as a member of your household.live with you as a member of your household.

b. An eligible foster child is an individual who is placed with you b. An eligible foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.other order of any court of competent jurisdiction.

c. A cousin meets this test only if he or she lives with you all year c. A cousin meets this test only if he or she lives with you all year as a member of your household.as a member of your household.

d. A person does not meet this test if at any time during the year d. A person does not meet this test if at any time during the year the relationship between you and that person violates local the relationship between you and that person violates local law.law.

4444


Gross Income Test (Test 3) Gross Income Test (Test 3)

To meet this test, a person’s gross income for the To meet this test, a person’s gross income for the year must be less than $3,650. Gross income is year must be less than $3,650. Gross income is all income in the form of money, property, and all income in the form of money, property, and services that is not exempt from tax.services that is not exempt from tax.

4545

QUALIFYING RELATIVEQUALIFYING RELATIVESupport Test (Test 4)Support Test (Test 4)

1.1. You must provide more than half of the total You must provide more than half of the total support for the person to meet this test except support for the person to meet this test except for multiple support and children of divorced or for multiple support and children of divorced or separated parents.separated parents.

2.2. Total support includes amounts spent for food, Total support includes amounts spent for food, lodging, clothing, education, medical and dental lodging, clothing, education, medical and dental care, medical insurance premiums, recreation, care, medical insurance premiums, recreation, transportation, and similar necessities.transportation, and similar necessities.

4646

QUALIFYING RELATIVEQUALIFYING RELATIVESupport Test (Test 4)Support Test (Test 4)

3. State benefit payments like welfare, food stamps, and housing are 3. State benefit payments like welfare, food stamps, and housing are considered support provided by the state, not by the parent, considered support provided by the state, not by the parent, regardless of how the parent actually spends the money.regardless of how the parent actually spends the money.a. In the case of multiple support, no one person provides more than half a. In the case of multiple support, no one person provides more than half

of the individual’s support, but two or more people together do. You of the individual’s support, but two or more people together do. You can agree that any one of you who individually provided more than can agree that any one of you who individually provided more than 10% of the individuals support can claim the exemption. The other 10% of the individuals support can claim the exemption. The other contributors must sign a statement agreeing not to claim the contributors must sign a statement agreeing not to claim the exemption for that year.exemption for that year.

b. In most cases of divorced and separated parents a child will be the b. In most cases of divorced and separated parents a child will be the qualifying child of one of the parents. However, if the child does not qualifying child of one of the parents. However, if the child does not meet the requirements to be a qualifying child of either parent, the meet the requirements to be a qualifying child of either parent, the child may be a qualifying relative of one of the parents. In that case child may be a qualifying relative of one of the parents. In that case follow the rules for divorce and separated parents.follow the rules for divorce and separated parents.

4747

SUPPORT TEST - PROBLEM 4SUPPORT TEST - PROBLEM 4

Your mother received $2,400 in social Your mother received $2,400 in social security benefits. She also received security benefits. She also received $300 in interest which she put into $300 in interest which she put into her savings account. She paid $2,000 her savings account. She paid $2,000 toward the rent and $400 for toward the rent and $400 for recreation. The total rent was $2,820 recreation. The total rent was $2,820 and you paid all of her food expenses and you paid all of her food expenses ($1,395). Do you pass the Support ($1,395). Do you pass the Support Test?Test?


4848


Your mother received $2,400 in social security Your mother received $2,400 in social security benefits. She also received $300 in interest benefits. She also received $300 in interest which she put into her savings account. She which she put into her savings account. She paid $2,000 toward the rent and $400 for paid $2,000 toward the rent and $400 for recreation. The total rent was $2,820 and you recreation. The total rent was $2,820 and you paid all of her food expenses ($1,395). Do you paid all of her food expenses ($1,395). Do you pass the Support Test?pass the Support Test?

NoNo

Your mother’s total expenses were $4,615 (rent, Your mother’s total expenses were $4,615 (rent, food & recreation). She paid $2,400 and you food & recreation). She paid $2,400 and you only paid $2,215 ($820 and $1,395) which is less only paid $2,215 ($820 and $1,395) which is less than half.than half.

4949


Darlene spent $2,400 for food, clothing, and Darlene spent $2,400 for food, clothing, and shelter for her 26-year-old son Bill. She shelter for her 26-year-old son Bill. She received $3,000 from welfare for her son. received $3,000 from welfare for her son. Can she claim a dependency exemption for Can she claim a dependency exemption for her son?her son?


5050


Darlene spent $2,400 for food, clothing, and Darlene spent $2,400 for food, clothing, and shelter for her 26-year-old son Bill. She shelter for her 26-year-old son Bill. She received $3,000 from welfare for her son. received $3,000 from welfare for her son. Can she claim a dependency exemption for Can she claim a dependency exemption for her son?her son?

No.No.

The $3,000 from welfare is more than half of The $3,000 from welfare is more than half of Bill’s total support of $5,400. Darlene Bill’s total support of $5,400. Darlene cannot claim a dependency exemption for cannot claim a dependency exemption for her son because she did not provide more her son because she did not provide more than half of Bill’s support.than half of Bill’s support.

5151


5252


Tax-exempt income, savings, and borrowed Tax-exempt income, savings, and borrowed amounts used to support the person do figure amounts used to support the person do figure Into total support. Support may also include Into total support. Support may also include furniture, appliances, and cars if they are furniture, appliances, and cars if they are bought for the person’s own use.bought for the person’s own use.

Calculate lodging using the fair rental value if Calculate lodging using the fair rental value if there was no rent actually collected. The fair there was no rent actually collected. The fair rental value is the amount you could reasonably rental value is the amount you could reasonably expect a stranger to pay for the same kind of expect a stranger to pay for the same kind of lodging.lodging.


5353

QUALIFYING RELATIVEQUALIFYING RELATIVEFair Rental Value Calculation Fair Rental Value Calculation

Your parents live rent free in a house you own. It has a Your parents live rent free in a house you own. It has a fair rental value of $5,400 a year furnished, which fair rental value of $5,400 a year furnished, which includes a fair rental value of $3,600 for the house includes a fair rental value of $3,600 for the house and $1,800 for the furniture. This does not include and $1,800 for the furniture. This does not include heat and utilities. The house is completely furnished heat and utilities. The house is completely furnished with furniture belonging to your parents. You pay with furniture belonging to your parents. You pay $600 for their utility bills. Utilities are not usually $600 for their utility bills. Utilities are not usually included in rent for houses in the area where your included in rent for houses in the area where your parents live. Therefore, you consider the total fair parents live. Therefore, you consider the total fair rental value of the lodging to be $6,000 ($3,600 fair rental value of the lodging to be $6,000 ($3,600 fair rental value of the unfurnished house, $1,800 rental value of the unfurnished house, $1,800 allowance for furnishings provided by your parents, allowance for furnishings provided by your parents, and $600 cost of utilities) of which you are and $600 cost of utilities) of which you are considered to provide $4,200 ($3,600 + $600).considered to provide $4,200 ($3,600 + $600).

5454



Total support does NOT include income taxes paid Total support does NOT include income taxes paid by the person for his/her own income, social by the person for his/her own income, social security and Medicare taxes paid by the person security and Medicare taxes paid by the person from his/her own income, life insurance from his/her own income, life insurance premiums, funeral expenses, scholarships to premiums, funeral expenses, scholarships to your child if a full-time student, and Survivors your child if a full-time student, and Survivors and Dependents Educational Assistance and Dependents Educational Assistance payments used for support of the child who payments used for support of the child who receives them.receives them.

5555

QUALIFYING RELATIVEQUALIFYING RELATIVEDetermining Total SupportDetermining Total SupportDon and Donette Davids want to claim Donette’s mother, Shirley Don and Donette Davids want to claim Donette’s mother, Shirley

Doubting, as their dependent. Shirley lived with the Davids for Doubting, as their dependent. Shirley lived with the Davids for the entire year. She received social security payments of the entire year. She received social security payments of $4,200 and earned $800 in interest on her savings account, $4,200 and earned $800 in interest on her savings account, which had a balance of $20,000 at the beginning of 2009. She which had a balance of $20,000 at the beginning of 2009. She put $300 of her social security into her savings account and put $300 of her social security into her savings account and also kept the $800 interest in her account. The Davids’ monthly also kept the $800 interest in her account. The Davids’ monthly household expenses included:household expenses included:Fair rental value of homeFair rental value of home $720$720Food Food 400 400Utilities and phone Utilities and phone 180 180They also paid the following for Shirley:They also paid the following for Shirley:Beauty salonBeauty salon $1,400$1,400 ClothingClothing $550 $550 Doctor billsDoctor bills 300 300 CosmeticsCosmetics 180 180TravelTravel 250 250 Entertainment Entertainment 500 500

GiftsGifts 450 450

Did you provide more than half the support?Did you provide more than half the support?


5656

YesYes

5757


There are two exceptions to the support test:There are two exceptions to the support test: Multiple supportMultiple support Children of divorced or separated parentsChildren of divorced or separated parents

In the case of MULTIPLE SUPPORT, no one person In the case of MULTIPLE SUPPORT, no one person provides more than half of the individual’s support, provides more than half of the individual’s support, but two or more people together do. You can agree but two or more people together do. You can agree that any one of you who individually provides more that any one of you who individually provides more than 10% of the individual’s support (but only ONE) than 10% of the individual’s support (but only ONE) can claim the exemption if the other tests are met. The can claim the exemption if the other tests are met. The other contributors must sign a statement agreeing not other contributors must sign a statement agreeing not to claim the exemption for that year. The person who to claim the exemption for that year. The person who claims the exemption must keep these signed claims the exemption must keep these signed statements for their records. A multiple support statements for their records. A multiple support declaration identifying each of the others who agreed declaration identifying each of the others who agreed not to claim the exemption must be attached to the not to claim the exemption must be attached to the return of the person claiming the exemption. Form return of the person claiming the exemption. Form 2120, 2120, Multiple Support Declaration, Multiple Support Declaration, can be used for can be used for this purpose.this purpose.


5858


Donald and Dennis Farrow each provide Donald and Dennis Farrow each provide 30 percent of the support of their 30 percent of the support of their father, Milo. Milo provides the rest of father, Milo. Milo provides the rest of the support. Donald can claim the the support. Donald can claim the exemption for his father if Dennis signs exemption for his father if Dennis signs a statement agreeing not to claim an a statement agreeing not to claim an exemption for Milo. exemption for Milo.

True or False?True or False?

5959


Donald and Dennis Farrow each provide 30 Donald and Dennis Farrow each provide 30 percent of the support of their father, Milo. percent of the support of their father, Milo. Milo provides the rest of the support. Milo provides the rest of the support. Donald can claim the exemption for his Donald can claim the exemption for his father if Dennis signs a statement agreeing father if Dennis signs a statement agreeing not to claim an exemption for Milo. not to claim an exemption for Milo.

True.True.

Donald keeps the statement with his records Donald keeps the statement with his records and submits Form 2120 with his return.and submits Form 2120 with his return.

6060

QUALIFYING RELATIVEQUALIFYING RELATIVESupport Test for Children of Divorced or Separated Support Test for Children of Divorced or Separated

Parents Parents A child will be treated as being the qualifying relative of A child will be treated as being the qualifying relative of

his or her non-custodial parent if all of the following his or her non-custodial parent if all of the following apply:apply:The parents:The parents:1.1. Are divorced or legally separated under a decree of divorce Are divorced or legally separated under a decree of divorce

or separate maintenance.or separate maintenance.2.2. Are separated under a written separation agreement.Are separated under a written separation agreement.3.3. Lived apart at all times during the last 6 months of the Lived apart at all times during the last 6 months of the

year.year. The child received over half of his or her support for the year from The child received over half of his or her support for the year from

the parents.the parents. The child is in the custody of one or both parents for more than The child is in the custody of one or both parents for more than

half of the year.half of the year. A decree of divorce or separate maintenance or written separation A decree of divorce or separate maintenance or written separation

agreement that applies to 2009 provides that the noncustodial agreement that applies to 2009 provides that the noncustodial parent can claim the child as a dependent (and, in the case of a parent can claim the child as a dependent (and, in the case of a pre-1985 agreement, the noncustodial parent provides at least pre-1985 agreement, the noncustodial parent provides at least $600 for the support of the child during the year) or the custodial $600 for the support of the child during the year) or the custodial parent signs a written declaration (such as Form 8332parent signs a written declaration (such as Form 8332) ) that he or that he or she will not claim the child as a dependent for the year.she will not claim the child as a dependent for the year.

6161

PHASEOUT OF EXEMPTIONSPHASEOUT OF EXEMPTIONS

The amount you can claim as a deduction for The amount you can claim as a deduction for exemptions is PHASED OUT once your exemptions is PHASED OUT once your adjusted gross income (AGI) goes above a adjusted gross income (AGI) goes above a certain level for your filing status. You must certain level for your filing status. You must reduce the dollar amount of your reduce the dollar amount of your exemptions by 2% for each $2,500, or part exemptions by 2% for each $2,500, or part of $2,500 ($1,250 for MFS) that your AGI of $2,500 ($1,250 for MFS) that your AGI exceeds the level for your filing status. exceeds the level for your filing status. However, you can lose no more than 1/3 of However, you can lose no more than 1/3 of the dollar amount of your exemptions. In the dollar amount of your exemptions. In other words, each exemption cannot be other words, each exemption cannot be reduced to less than $2,433.reduced to less than $2,433.

6262


6363

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSKEY IDEASKEY IDEASRules for claiming an exemption for a dependentRules for claiming an exemption for a dependent

1.1. You cannot claim any dependents if you, or your You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a spouse if filing jointly, could be claimed as a dependent by another taxpayer.dependent by another taxpayer.

2.2. You cannot claim a married person who files a You cannot claim a married person who files a joint return as a dependent unless that joint joint return as a dependent unless that joint return is only a claim for refund and there would return is only a claim for refund and there would be no tax liability for either spouse on separate be no tax liability for either spouse on separate returns.returns.

3.3. You cannot claim a person as a dependent unless You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident, U.S. that person is a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico, for national, or a resident of Canada or Mexico, for some part of the year.some part of the year.

4.4. You cannot claim a person as a dependent unless You cannot claim a person as a dependent unless that person is your qualifying child or qualifying that person is your qualifying child or qualifying relative.relative.

6464

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSKEY IDEASKEY IDEAS

Qualifying ChildQualifying Child

1.1. The child must be your son, daughter, stepchild, eligible The child must be your son, daughter, stepchild, eligible foster foster child, brother, sister, half brother, half sister, stepbrother, child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.stepsister, or a descendant of any of them.

2.2. The child must be The child must be 1.1. under age 19 at the end of the year and younger than you (or under age 19 at the end of the year and younger than you (or

your spouse, if filing jointly)your spouse, if filing jointly)2.2. under age 24 at the end of the year and a full-time student and under age 24 at the end of the year and a full-time student and

younger than you (or your spouse, if filing jointly) , or younger than you (or your spouse, if filing jointly) , or 3.3. any age if permanently and totally disabled.any age if permanently and totally disabled.

3.3. The child must have lived with you for more than half of the The child must have lived with you for more than half of the year.year.

4.4. The child must not have provided more than half of his or her The child must not have provided more than half of his or her own support for the year.own support for the year.

5.5. If the child meets the rules to be a qualifying child of more than If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a one person, you must be the person entitled to claim the child as a qualifying child.qualifying child.

6565

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTS

KEY IDEASKEY IDEAS

Qualifying RelativeQualifying Relative1. The person cannot be your qualifying child or the 1. The person cannot be your qualifying child or the

qualifying child of any other taxpayer.qualifying child of any other taxpayer.

2. The person either (a) must be related to you in 2. The person either (a) must be related to you in one of the ways listed under relatives who do not one of the ways listed under relatives who do not have to live have to live with you, or (b) must live with you all with you, or (b) must live with you all year as a member of your household.year as a member of your household.

3. The person’s gross income for the year must be 3. The person’s gross income for the year must be less than $3,650.less than $3,650.

4. You must provide more than half of the person’s 4. You must provide more than half of the person’s total support for the year.total support for the year.

6666

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTS CLASSWORK 1CLASSWORK 1: Using the Rules for Dependency, : Using the Rules for Dependency,

(1) Tracey spent $3,400 for food, shelter, and clothing for her four-year-old (1) Tracey spent $3,400 for food, shelter, and clothing for her four-year-old daughter. She received $2,900 from welfare for her daughter. Is the support daughter. She received $2,900 from welfare for her daughter. Is the support test met for a qualifying child? test met for a qualifying child?

(2) Phil’s son, Tony, earned $3,700 last year. Tony is 21 years old and(2) Phil’s son, Tony, earned $3,700 last year. Tony is 21 years old andstarted college in September 2009. Is the age test for a qualifyingstarted college in September 2009. Is the age test for a qualifyingchild met? child met?

(3) Joanne’s daughter, Adrienne, earned $3,700 last year. Adrienne is 20 years old (3) Joanne’s daughter, Adrienne, earned $3,700 last year. Adrienne is 20 years old and not in school. Can Joanne claim Adrienne as a dependant? and not in school. Can Joanne claim Adrienne as a dependant?

(4) Curly provided all of the support of his father, Larry, who lived with him all year. (4) Curly provided all of the support of his father, Larry, who lived with him all year. Larry’s only income is $3,750 of interest and social security of $1,200. Can Larry’s only income is $3,750 of interest and social security of $1,200. Can Curly claim Larry as a dependent? Curly claim Larry as a dependent?

(5) Can Myra claim a person with a gross income of $3,650 as a qualifying relative? (5) Can Myra claim a person with a gross income of $3,650 as a qualifying relative?

(6) Fred lives with his girlfriend Sue and her six-year-old child Amy. Fred provides (6) Fred lives with his girlfriend Sue and her six-year-old child Amy. Fred provides over half of the support for Amy and both Sue and Amy lived all year with over half of the support for Amy and both Sue and Amy lived all year with Fred. Sue has no income and she has not signed a Form 8332 allowing the Fred. Sue has no income and she has not signed a Form 8332 allowing the noncustodial parent to claim Amy. Can Amy be Fred’s qualifying child? If not, noncustodial parent to claim Amy. Can Amy be Fred’s qualifying child? If not, can Fred claim her as a qualifyingcan Fred claim her as a qualifying relative?relative?

6767

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTS CLASSWORK 1CLASSWORK 1: Using the Rules for Dependency, : Using the Rules for Dependency,

(1) Tracey spent $3,400 for food, shelter, and clothing for her four-year-old daughter. (1) Tracey spent $3,400 for food, shelter, and clothing for her four-year-old daughter. She received $2,900 from welfare for her daughter. Is the support test met for a She received $2,900 from welfare for her daughter. Is the support test met for a qualifying child? qualifying child? YESYES

(2) Phil’s son, Tony, earned $3,700 last year. Tony is 21 years old and(2) Phil’s son, Tony, earned $3,700 last year. Tony is 21 years old andstarted college in September 2009. Is the age test for a qualifyingstarted college in September 2009. Is the age test for a qualifyingchild met? child met? NONO

(3) Joanne’s daughter, Adrienne, earned $3,700 last year. Adrienne is 20 years old (3) Joanne’s daughter, Adrienne, earned $3,700 last year. Adrienne is 20 years old and not in school. Can Joanne claim Adrienne as a dependant? and not in school. Can Joanne claim Adrienne as a dependant? NONO

(4) Curly provided all of the support of his father, Larry, who lived with him all year. (4) Curly provided all of the support of his father, Larry, who lived with him all year. Larry’s only income is $3,750 of interest and social security of $1,200. Can Curly Larry’s only income is $3,750 of interest and social security of $1,200. Can Curly claim Larry as a dependent? claim Larry as a dependent? NONO

(5) Can Myra claim a person with a gross income of $3,650 as a qualifying relative? (5) Can Myra claim a person with a gross income of $3,650 as a qualifying relative?

NONO

(6) Fred lives with his girlfriend Sue and her six-year-old child Amy. Fred provides (6) Fred lives with his girlfriend Sue and her six-year-old child Amy. Fred provides over half of the support for Amy and both Sue and Amy lived all year with Fred. over half of the support for Amy and both Sue and Amy lived all year with Fred. Sue has no income and she has not signed a Form 8332 allowing the Sue has no income and she has not signed a Form 8332 allowing the noncustodial parent to claim Amy. Can Amy be Fred’s qualifying child? noncustodial parent to claim Amy. Can Amy be Fred’s qualifying child? NONO If If not, can Fred claim her as a qualifyingnot, can Fred claim her as a qualifying relative?relative? YESYES

6868

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 2: True or False. CLASSWORK 2: True or False.

(1) The custodial parent can sign an agreement allowing the noncustodial parent to (1) The custodial parent can sign an agreement allowing the noncustodial parent to claim an exemption for their child. claim an exemption for their child.

(2) The support test for qualifying child states that the child (2) The support test for qualifying child states that the child cannot have provided cannot have provided over half of his/her own support. over half of his/her own support.

(3) Every person claimed as a dependent must have a social security number or other (3) Every person claimed as a dependent must have a social security number or other valid taxpayer identification number. valid taxpayer identification number.

(4) You can never take an exemption for your dependent if he/she files a joint return. (4) You can never take an exemption for your dependent if he/she files a joint return.

(5) The custodial parent can sign a statement releasing the child’s exemption to the (5) The custodial parent can sign a statement releasing the child’s exemption to the noncustodial parent. The written declaration can only release the exemption for noncustodial parent. The written declaration can only release the exemption for one year.one year.

(6) A technical school does not meet the school definition for the age test for (6) A technical school does not meet the school definition for the age test for qualifying child. qualifying child.

(7) If your filing status is MFS, you can always claim an exemption for yourself and (7) If your filing status is MFS, you can always claim an exemption for yourself and one for your wife. one for your wife.

(8) Temporary absences due to special circumstances do not prohibit someone from (8) Temporary absences due to special circumstances do not prohibit someone from being a member of your household. being a member of your household.

6969

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 2: True or False. CLASSWORK 2: True or False.

(1) The custodial parent can sign an agreement allowing the noncustodial parent to (1) The custodial parent can sign an agreement allowing the noncustodial parent to claim an exemption for their child. claim an exemption for their child. T T

(2) The support test for qualifying child states that the child (2) The support test for qualifying child states that the child cannot have provided cannot have provided over half of his/her own support. over half of his/her own support. TT

(3) Every person claimed as a dependent must have a social security number or other (3) Every person claimed as a dependent must have a social security number or other valid taxpayer identification number. valid taxpayer identification number. TT

(4) You can never take an exemption for your dependent if he/she files a joint return. (4) You can never take an exemption for your dependent if he/she files a joint return. FF

(5) The custodial parent can sign a statement releasing the child’s exemption to the (5) The custodial parent can sign a statement releasing the child’s exemption to the noncustodial parent. The written declaration can only release the exemption for one noncustodial parent. The written declaration can only release the exemption for one year.year. FF

(6) A technical school does not meet the school definition for the age test for qualifying (6) A technical school does not meet the school definition for the age test for qualifying child. child. FF

(7) If your filing status is MFS, you can always claim an exemption for yourself and one (7) If your filing status is MFS, you can always claim an exemption for yourself and one for your wife. for your wife. FF

(8) Temporary absences due to special circumstances do not prohibit someone from (8) Temporary absences due to special circumstances do not prohibit someone from being a member of your household. being a member of your household. TT

7070

EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 2: CLASSWORK 2: True or False.True or False.

(9) (9) If your spouse died during the year, you cannot claim their exemption. If your spouse died during the year, you cannot claim their exemption.

(10) The custodial parent is the parent with whom the child lived the greater (10) The custodial parent is the parent with whom the child lived the greater part of the year. part of the year.

(11) An eligible foster child meets the relationship test for qualifying child. (11) An eligible foster child meets the relationship test for qualifying child.

(12) If two people together contribute more than half an individual’s support, (12) If two people together contribute more than half an individual’s support, they both can claim the exemption. they both can claim the exemption.

(13) You can use entertainment costs in calculating total support for a person. (13) You can use entertainment costs in calculating total support for a person.

(14) A person must live with you over half the year as a member of your (14) A person must live with you over half the year as a member of your household or be related to you in one of the ways listed in “relatives who household or be related to you in one of the ways listed in “relatives who do not have to live with You all year”, to meet the member of household or do not have to live with You all year”, to meet the member of household or relationship test for qualifying relative. relationship test for qualifying relative.

(15) To meet the citizenship test, a person must be a U.S. citizen for the entire (15) To meet the citizenship test, a person must be a U.S. citizen for the entire year. year.

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EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 2: CLASSWORK 2: True or False.True or False.

(9) (9) If your spouse died during the year, you cannot claim their exemption. If your spouse died during the year, you cannot claim their exemption. FF

(10) The custodial parent is the parent with whom the child lived the greater part (10) The custodial parent is the parent with whom the child lived the greater part of the year. of the year. TT

(11) An eligible foster child meets the relationship test for qualifying child. (11) An eligible foster child meets the relationship test for qualifying child. TT

(12) If two people together contribute more than half an individual’s support, (12) If two people together contribute more than half an individual’s support, they both can claim the exemption. they both can claim the exemption. FF

(13) You can use entertainment costs in calculating total support for a person. (13) You can use entertainment costs in calculating total support for a person. TT

(14) A person must live with you over half the year as a member of your (14) A person must live with you over half the year as a member of your household or be related to you in one of the ways listed in “relatives who do household or be related to you in one of the ways listed in “relatives who do not have to live with You all year”, to meet the member of household or not have to live with You all year”, to meet the member of household or relationship test for qualifying relative. relationship test for qualifying relative. FF

(15) To meet the citizenship test, a person must be a U.S. citizen for the entire (15) To meet the citizenship test, a person must be a U.S. citizen for the entire year. year. FF

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EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 2: CLASSWORK 2: True or False. True or False.

(16) A household member who dies during the year meets the (16) A household member who dies during the year meets the member of household test for qualify relative. member of household test for qualify relative.

(17) Gross income includes money, property, tax-exempt income, and (17) Gross income includes money, property, tax-exempt income, and services. services.

(18) A person related to your spouse is not considered to meet the (18) A person related to your spouse is not considered to meet the relationship test for you once you are divorced. relationship test for you once you are divorced.

(19) If your child is 24 years old and a full-time student with a (19) If your child is 24 years old and a full-time student with a gross gross income of $3,650, you cannot claim an exemption for income of $3,650, you cannot claim an exemption for that child. that child.

(20) To qualify for the gross income test for a qualifying relative, your (20) To qualify for the gross income test for a qualifying relative, your 27-year-old child must earn less than $3,650. 27-year-old child must earn less than $3,650.

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EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 2: CLASSWORK 2: True or False. True or False.

(16) A household member who dies during the year meets the (16) A household member who dies during the year meets the member of household test for qualify relative. member of household test for qualify relative. TT

(17) Gross income includes money, property, tax-exempt income, and (17) Gross income includes money, property, tax-exempt income, and services. services. FF

(18) A person related to your spouse is not considered to meet the (18) A person related to your spouse is not considered to meet the relationship test for you once you are divorced. relationship test for you once you are divorced. FF

(19) If your child is 24 years old and a full-time student with a (19) If your child is 24 years old and a full-time student with a gross gross income of $3,650, you cannot claim an exemption for income of $3,650, you cannot claim an exemption for that child. that child. TT

(20) To qualify for the gross income test for a qualifying relative, your (20) To qualify for the gross income test for a qualifying relative, your 27-year-old child must earn less than $3,650. 27-year-old child must earn less than $3,650. TT

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EXEMPTIONS AND DEPENDENTSEXEMPTIONS AND DEPENDENTSCLASSWORK 3CLASSWORK 3: Complete a dependency support form and determine if the taxpayers can : Complete a dependency support form and determine if the taxpayers can claim the exemption.claim the exemption.

Frank (SSN 110-24-9330) and Gloria Stephens (SSN 234-56-7890) live at 397 Westend Rd., Frank (SSN 110-24-9330) and Gloria Stephens (SSN 234-56-7890) live at 397 Westend Rd., Nashville, TN 37203. Gloria’s father, Mr. James (SSN 012-45-1213) lived with them for all of Nashville, TN 37203. Gloria’s father, Mr. James (SSN 012-45-1213) lived with them for all of 2009. He is a widower and a U.S. citizen.2009. He is a widower and a U.S. citizen.

Mr. James received $4,000 in social security and earned $920 in interest in his savings Mr. James received $4,000 in social security and earned $920 in interest in his savings account, which had a balance of $23,000 at the beginning of 2009. He saved $800 of these account, which had a balance of $23,000 at the beginning of 2009. He saved $800 of these social security payments and also saved his interest earnings. The remaining money was social security payments and also saved his interest earnings. The remaining money was spent for his support.spent for his support.

Frank and Gloria also have a 3-year-old daughter living with them. They figured the fairFrank and Gloria also have a 3-year-old daughter living with them. They figured the fairrental value of their home was $700 per month. Other monthly expenses included $650rental value of their home was $700 per month. Other monthly expenses included $650for food and $210 for utilities. Mr. James’ other expenses for the year were as follows:for food and $210 for utilities. Mr. James’ other expenses for the year were as follows:

Clothing Clothing $ 405$ 405Medical/dental expenses Medical/dental expenses 1,1501,150Travel Travel 500 500GiftsGifts 400 400Dry cleaning Dry cleaning 75 75Entertainment Entertainment 500 500Cosmetics Cosmetics 180 180Hair cutsHair cuts 130 130

Fill in a dependency support chart and determine whether Mr. James meets theFill in a dependency support chart and determine whether Mr. James meets thedependency tests.dependency tests.

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