Chapter 8 - Taxation of Individuals

Chapter 8 - Taxation of Individuals - Chapter 8 Taxation of...

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Chapter 8 – Taxation of Individuals I. Personal and Dependency Exemptions a. Each individual taxpayer filing a tax return is allowed a personal exemption deduction of $3,650 i. Amount allowed by Congress for basic personal living costs such as food and clothing b. Dependency Exemption: i. Dependency Requirements: 1. Dependent: a. Individual that is a qualifying child or a qualifying relative 2. Qualifying Child: a. Five Tests: i. Age Test: 1. Individual must be under the age of 19 at the end of the year, a full-time student under the age of 24 at the end of the year, or be permanently and totally disabled ii. Non-Support Test: 1. Individual being claimed as a dependent must not have provided more than one-half of their support a. Scholarships don’t count b. Person who is claiming the dependency exemption does not have to provide more than one-half of the support iii. Relationship Test: 1. Individual must be the taxpayer’s son, daughter, stepson, stepdaughter, eligible foster child or descendant of such a child, or the taxpayer’s brother, sister, stepbrother, stepsister, or any descendant of such relative iv. Principle Residence Test:
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1. Individual must live with the taxpayer for more than one- half of the year a. Temporary absences due to illness, vacation, education, military service, etc. do not count as being away from the residence v. Citizen or Residency Test: 1. Child must be a citizen of the United States, or a resident of the United States, Canada, or Mexico 3. Qualifying Relative: a. Five Tests: i. Gross Income Test: 1. To be a dependent, an individual must have a gross income less than the dependency exemption amount ($3,650) ii. Support Test: 1. Requires that the taxpayer claiming the dependency exemption provide more than half the support of the dependent a. Multiple Support Agreement: i. If two or more individuals collectively provide more than 50 percent of the support, any member of this group can take the dependency exemption b. Custodial parent is entitled to the dependency exemption, regardless of actual support provided iii. Relationship, or Member of Household, Test: 1. Dependent must either be a relative of the taxpayer or a member of the taxpayer’s household for the entire year a. Relatives are ancestors, lineal descendants, siblings, and blood relationships iv. Citizen or Residency Test:
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1. Dependent must be a citizen of the United States or a resident of the United States, Canada, or Mexico v. Joint Return Test: 1. Dependents who are married may not file joint returns with their spouses for the exemption year in question a. Exception for married dependents who are not required to file a tax return but file a return solely for the purpose of obtaining a refund II. Filing Status a. Married, Filing Jointly: i. Taxpayers must be legally married as of the last day of the tax year 1. If a spouse dies during the year, filing status is determined as of the date of death of the spouse if the survivor did not remarry during the
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This note was uploaded on 04/24/2011 for the course MGMT 504 taught by Professor Hatcher during the Spring '08 term at Purdue.

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Chapter 8 - Taxation of Individuals - Chapter 8 Taxation of...

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