24211_ch04_final_p001-012

24211_ch04_final_p001-012 - Personal and Dependency...

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Personal and Dependency Exemptions; Filing Status; Determination of Tax for an Individual; Filing Requirements Solutions to Problem Materials D ISCUSSION Q UESTIONS 4-1 The personal exemption is a deduction allowed each taxpayer. On a joint return, each of the two taxpayers (husband and wife) is entitled to a personal exemption deduction. Dependency exemptions are allowed for each qualifying dependent, whether a qualifying child or other dependent, of the taxpayer. See Question 2 for the definition of a dependent. The exemption amount for both the personal and dependency exemptions is $3,700 for 2011. However, a taxpayer who qualifies to be claimed as a dependent on any other taxpayer s return may not claim a personal exemption (technically the exemption deduction is zero) on his or her own return. (See pp. 4-2 and 4-3 and §§ 151 and 152.) 4-2 In order for an individual to be considered a qualifying child, six requirements must be met. 1. Relationship test must be the taxpayer s child, step-child, or foster child, or a sibling or step-sibling, or a descendant of any of these. See question 4-3. 2. Residence test the qualifying child must have the same place of abode as the taxpayer. 3. The qualifying child must be under age-19, or under age-24 and a full-time student, or totally and permanently disabled. 4. The child may not have filed a joint return if he or she is married at the end of the year, unless there is no tax shown on the return. 5. The child must be a U. S. citizen, resident, or national, or a resident of Canada or Mexico. 6. The child cannot be self-supporting (i.e., provides more than one-half of his or her own support). (See p. 4-3.) 4-3 The relationship test stipulates that a qualifying child must be the taxpayer s ± natural, adopted, or foster child, ± step-child, or ± foster child, or ± a sibling or step-sibling, ± or a descendant of any of these. (See p. 4-3.) 4 4-1
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4-4 a. C is entitled to the exemption. Since C cannot be claimed by Q, C and Q are otherwise eligible to claim the exemption for D. Under the tie-breaker rules, the exemption goes to C, since C is a parent of D. b. R is entitled to the exemptions for D. E is a qualifying child of R. Since E can be claimed by R, E cannot claim the exemption for D. Since D is a qualifying child of R, R may claim the exemption. c. S is entitled to the exemption for D. F is not a qualifying child of S, but she may be claimed under the rules for other dependents. Since F can be claimed by S, F cannot claim an exemption for D. Since D is a qualifying child of S, S can claim the exemption for D. (See pp. 4-3 to 4-9.) 4-5 All five of the tests below must be met in order for a taxpayer to be entitled to an exemption for a dependent who is a qualifying relative but not a qualifying child. To emphasize, all five tests must be met (not simply a majority).
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24211_ch04_final_p001-012 - Personal and Dependency...

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