A $1,000 deduction reduces taxable income.
• Kate is single and a homeowner. In 2015, she has property taxes on her home of $3,000, makes charitable contributions of $2,000, and pays home mortgage interest of $7,000. Kate's adjusted gross income for 2015 is $77,000.
• In 2015, Sam is single and rents an apartment for which he pays $800 per month and makes charitable contributions of $1,000. Sam's adjusted gross income is $47,000.
2. Personal and Dependency Exemptions
Personal and Dependency Exemptions In computing taxable income, an individual is allowed a deduction for each personal exemption allowed. An exemption is allowed for each of the following: (1) Individual taxpayer and spouse. (2) Dependents of the taxpayer - qualifying child or - qualifying relative
Dependency Exemptions—Qualifying Child Taxpayers are allowed to take an exemption for each qualifying child. Must meet 4 tests. R – Relationship A – Age H – Housing S – Support
Dependency Exemptions—Qualifying Child R elationship – children and siblings(or a descendent of any of these individuals). A ge – under 19 or under 24 and full time student. H ousing – child lived with the taxpayer for over ½ the year. (exceptions include birth, death, illness, education, military and business travel). S upport – a child who provides over ½ of its own support is not a qualifying child.
Dependency Exemptions—Qualifying Relative A taxpayer is allowed an exemption for each qualifying relative. The potential dependent must meet 3 tests. 1. Relationship/Household Test 2. Gross Income Test 3. Support Test
Dependency Exemptions—Qualifying Relative 1. Relationship/Household Test Either of the following must be satisfied. 1) Relationship test : Dependent must be a relative. Mother, father, aunts, uncles, niece, nephew, in-laws qualify, cousins do not qualify. or 2) Household test : Dependent must occupy the taxpayer’s household during the entire year (exceptions include birth, death, illness, education, military and business travel).
Dependency Exemptions—Qualifying Relative 2. Gross Income Test Dependent’s gross income < the exemption amount. 3 . Support Test A taxpayer must provide over one-half of the amount “actually spent” on support for the potential dependent. Includes food, shelter, clothing, medical care and education. Scholarships are not counted in determining the support of a potential dependent.
• Lorna is a single taxpayer. Which of the following people can she claim as her dependents? (all are U.S. citizens, are not married, and have no dependents themselves) • Her sister Lisa who lives with her. Lisa works at Burger King but does not make enough to support herself. Lisa is 18 years old and is supported by rich uncle Harry. Lisa’s gross income is $2,000. • Her brother Melvin who is 25 and lives down the street from Lorna. Melvin has no gross income. Lorna supports him. • Her cousin Felix who is 16 years old. Felix lives with Lorna and has no gross income. Lorna supports him.
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- Winter '15
- Tax Returns, Taxation in the United States