Taxpayer must supply more than ½ [greater than 50%] of support of a personoUnder Gross Income Limitation: TaxableRelatives gross income is less than $4,200 Taxable Income: only income that is taxable is included for purpose of gross income limitationNontaxable Income: okay and not included in gross income Social Security [at low income levels]Tax-Exempt Interest Income [state and municipal interest income]Tax-Exempt ScholarshipsoPrecludes Dependent Filing a Joint Return Relative cannot be a married dependent who files a joint returnUNLESS, there is no tax liability on the couple’s joint return and there wouldn’t have been any tax liability on either spouse’s tax return if they had filed separately oOnly Citizens of the United States or Residents of the U.S., Mexico, or Canada oRelative Children [Adopted & Foster], Stepchildren, Grandchildren, Parents, Stepparents, Grandparents, Siblings, Stepsiblings, Aunts and Uncles, Nieces and Nephews, In-LawsFoster Parents and Cousins must live with taxpayer for entire yearORoTaxpayer Lives with Individual (if Non-Relative) for Entire YearNon-relative member of a household may be considered a qualifying relative provided the taxpayer’s relationship with that person does not violate local lawFoster parents and cousins must live with taxpayer for entire yearMultiple Support Agreements: one “supporter” gets full qualificationo2+ TP contribute more than 50% of support of person but none of them individually contributes more than 50%oThe contributing taxpayers, all must be qualifying relatives of (or lived the entire year with) the individual, may decide who claims the dependency exemption Contributor must have contributed more than 10% of the person’s supports Module 2 – Gross Income: Part 1Gross Income Overview Realization [Real World]:requires accrual or receipt of cash, property, services, or change in form or nature of investment (a sale or exchange) Recognition [Records]: if realized and recognized, the gain must be included on the tax return Accrual Method:recognition according to GAAP; revenue is taxable when earned; Over $25 million in businessCash Method:recognition occurs in period revenue is actually or constructively received in cash or (FMV) property; Under $25 million in business Specific Items of Income and ExclusionsGross Income:includes:oMoney: received, credited, availableoProperty:FMV of all propertyoCancellation of Debt [COD]:All debts canceled are included; the forgiven amount oBargain Purchases: employer sell property to employee under FMV, difference = income to employeeoGuaranteed Payments to Partner[K-1]: reasonable compensation paid for services rendered (or use of capital) without regard to partner’s ratio of income; this earned compensation also subject to self-employment tax oTaxable Fringe Benefits:FMV not specifically excluded by law is includable and subject to employment taxes and withholding [i.e. personal use of company care is included as wages in employee’s income]o
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- Spring '16
- Taxation in the United States