out4 - Introduction to Taxation Chapter 4 Exemptions Filing...

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Introduction to Taxation Chapter 4 Exemptions, Filing Status, Estimated Taxes, Filing Requirements Fall 2008 Kulsrud
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I. PERSONAL AND DEPENDENCY EXEMPTIONS 1. Amounts 1.1. $3,500 in 2008, indexed annually for inflation 1.2. Phase out of exemptions for high income earners AGI - threshold x 2% = Tentative x 2/3 = Percentage of total $2,500 Reduction Exemption deduction disallowed EXEMPTION PHASE-OUT THRESHOLDS Filing Status 1991 2008 Single 100,000 $159,950 $ 282,450 * Heads of household 125,000 239,950 362,450 Married (joint) 150,000 199,950 322,450 Married (separate) 75,000 119,975 242,475 *The phase-out percentage is 100% when income exceeds the threshold by more than $122,500 ($122,500/$2,500 = 49% x 2 = 98%) 2. Exemptions for the taxpayer 2.1. Himself; but not if eligible to be claimed as a dependent on another return 2.2. Spouse 1. Married filing separately 2. No gross income 3. Not claimed as an exemption by herself or another 3. Exemptions for dependents: qualifying child or qualifying relative. 3.1. Common provisions 1. The prospective dependent cannot file a joint return unless he or she owes zero taxes and the return is being filed only to claim a refund of prepaid taxes. 2. Citizen or resident 3. A taxpayer cannot claim an exemption for another person if the taxpayer himself is a dependent 4. Qualifying child (§152(c)) in general. A person is a qualifying child if the person: 4.1. has a specified relationship to the taxpayer; 4.2. has the same principal residence as the taxpayer for more than one half of the taxable year; 4.3. has not yet attained a specified age ; and 4.4. has not provided over one-half of his or her own support for the taxable year. 4.5. does not file a joint return 4.6. is a U.S. citizen or national or resident of U.S., Canada or Mexico 2
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5. Qualifying child: relationship test . A child includes: 0 . A son or daughter. For this purpose, a child includes a stepson or stepdaughter, legally adopted child, a foster child who lives with the taxpayer the entire taxable year, or a child lawfully placed with the taxpayer by an authorized agency pending legal adoption by the taxpayer. 2. A descendant of a son or daughter (e.g., a grandson or granddaughter). 3 . A brother, sister, stepbrother, or stepsister (including those by half-blood) or a descendant of such relative (e.g., a niece or nephew). 6. Qualifying child: age test . (§153(c)(3)(A)): 1. Has not reached age 19 by the close of the taxable year. 2. Is a full-time student and has not reached age 24. Full-time (using the definition of the institution) means 5 calendar months during the calendar year at certain qualified educational organizations (§170(b)(1)(A) (ii)). 3. Is permanently and totally disabled at any time during the year. The age limitation does not apply to these individuals. 7. Qualifying child: abode or residency test . 1. Must have the same principal place of abode (i.e., residence) as the taxpayer for more than one half of the taxable year.
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