Filing Status

Use Form C In order to ensure accurate reporting of filing status, be sure to go through Form C thoroughly. Any incomplete sections or incorrect sections must be revisited in order to ensure a complete and accurate tax return.

The Five Filing Statuses Married Filing Jointly (Box 2) Qualifying Widower with Dependent Child (Box 5) Head of Household (Box 4) – Must provide the name of the dependent that qualifies the taxpayer for this status. Single (Box 1) Married Filing Separately (Box 3)

Married Filing Jointly Married on the last day of the tax year Spouse died during the year and the surviving spouse did not remarry Both spouses must sign the return Are responsible for any tax owed on the return

Qualifying Widow(er) with Dependent Child To qualify, taxpayer must: – Have a spouse died in the last two years and must not remarry before that. – Must have qualified to file a joint return for the year the spouse died. – Have a child, stepchild, or adopted child who qualifies as the taxpayer’s dependent for the year. – Live with this child in the taxpayer’s home all year. – Have paid more than half the cost of keeping up the home for the year. During the year of the spouse’s death, the taxpayer may still claim them as an exemption. After the second year following the year of death, the widowed taxpayer may no longer use the Qualifying Widow(er) filing status.

Example Can Samantha James file as Qualifying widower for the tax year 2012 if her spouse passed away in 2010?

Answer Yes she can, 2012 will be the final year she will qualify for that status.

Married Filing Separately Choose to file separate returns Cannot agree to file a joint return Each spouse reports their own income, expenses, and deductions.

Things to know about Married Filing Separately The tax rate is generally higher than on a joint return. Taxpayers cannot take credits for child and dependent care expenses, earned income, and certain adoption and education expenses. Some credits and deductions are reduced at income levels that are half those for a joint return such as the child tax credit. Both spouses social security numbers must be on the tax return. Also, if one spouse itemizes deductions then the taxpayer must: – Also itemize deductions – Claim zero as the standard deduction One reason taxpayers choose this filing status is to avoid an offset of their refunds against their spouse’s outstanding debts.

Head of Household A taxpayer qualifies for this status if: – Is unmarried or considered unmarried on the last day of the tax year. – Paid more than half the cost of keeping up a home for the tax year. i.e. rent, mortgage interest, real estate taxes, home insurance, food eaten in the home. – Had a qualifying person living in their home with them more than half of the year. Qualifying child, a married child who can be claimed as a dependent, a dependent parent, or a qualifying relative who lived with the taxpayer more than half of the year and is one of the relatives listed. Qualifying child will be discussed later in the Dependency Exemptions slides. – If using this filing status, make sure to include the name of the person that qualifies the taxpayer to file as Head of Household. – If the taxpayer is married but has lived apart from their spouse during the entire last six months of the year and satisfies the above conditions, then they may file as Head of Household (i.e. abandoned spouse).

Example Jessica is married, but her spouse left her in May of She takes care of her daughter, Tory, thus providing over half of her support. Tory who is 10 years old and has lived with Jessica all year. Does Jessica qualify for Head of Household?

Answer Yes. Why?

Single Taxpayer Not married Legally separated or divorced Widowed before the first day of the tax year and not remarried during the year

Example: Who may choose to file under either the Married Filing Jointly or the Married Filing Separately status? a.A married taxpayer whose spouse does not have income b.A divorced taxpayer who itemizes deductions c.Taxpayers who are legally separated and share child custody

a. A married taxpayer whose spouse does not have income

Personal Exemptions

Making sure to identify and entering the correct number of exemptions is a very critical component of the taxpayer’s tax return because each allowable exemption reduces their taxable income.

What are Exemptions? An exemption is a dollar amount that can be deducted from an individual’s total income. There are two kinds of exemptions: – Personal Exemptions; taxpayers can generally claim themselves (and their spouse). – Dependency exemptions; taxpayers claim for qualifying dependents. (Discussed in the next section).

Very Important! ALWAYS make sure to ask the taxpayer if anyone can claim them or their spouse as dependents. If the taxpayer can be claimed by someone else then they cannot claim their own exemption. If the taxpayer wants to claim a personal exemption for their spouse, then they must: – Be married as of December 31 st of the tax year. – Spouse cannot be claimed as a dependent on another person’s tax return. – Files a joint return, or files a separate return and the spouse had no income and is not filing a joint return. If the taxpayers are married and filing a joint return, then they can claim a personal exemption for each other. If the taxpayers are divorced or legally separate at the end of the tax year, then they may not claim their former spouse’s personal exemption.

Deceased Spouse A taxpayer whose spouse died during the tax year may claim the personal exemption if all of these apply: – Did not remarry by December 31 st – Was not divorced or legally separated from their spouse on the date of death. – Would have been able to claim the exemption under the rules for a joint or separate return.

Example: John Reed's wife died in John has not remarried. During 2011 and 2012, he continued to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. For 2010 he was entitled to file a joint return for himself and his deceased wife. For 2011 and 2012, he can file as qualifying widower with a dependent child. After 2012 he can file as head of household if he qualifies.

Dependency Exemptions

Qualifying Dependents A dependent is either a qualifying child or a qualifying relative, each of which have their own sets of rules. However, some rules are the same for both. If a taxpayer claims a person as a dependent, then the dependent cannot take a personal exemption on THEIR tax return.

Test that apply to both, Qualifying Child and Qualifying Relative Dependency Taxpayer Test: – A taxpayer who can be claimed as a dependent by someone else, then they cannot be claimed as a dependent. Joint Return Test: – A married person who files a joint return cannot be claimed as a dependent unless that joint return is only to a claim for a refund and there would not exist a tax liability for either spouse on their separate returns. Citizen or Resident Test: – The dependent must be a U.S. Citizen, U.S. Resident Alien, U.S. National, or a resident of Canada or Mexico. – If a U.S. Citizen adopts a child that is not a U.S citizen or resident, this test is met as long as the other dependent child test are met as well and the child lives with the taxpayer all year.

Qualifying Child Tests Relationship Test Age Test Residency Test Support Test Qualifying Child of More Than One Person Test

Relationship Test Was the child your offspring, eligible foster child, sibling, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them.

Age Test Was the child under age 19 at the end of the tax year and younger than the taxpayer. Or a full-time student under the age 24 at the end of the year and younger than the taxpayer. Permanently and totally disabled at any time during the year.

Residency Test The child must have lived with the taxpayer for more than half of the year. Also, the taxpayer may claim an exemption for a child who was born or died, or was kidnapped during the tax year as long as the other dependent tests are met.

Support Test The child cannot have provided more than half of his or her own support during the tax year. However, a person’s own funds are not support unless they are actually spent for support. So if the child has earned money but has not spend any of it, then the support test is met.

Qualifying Child of More Than One Person Test Even though a child may be a qualifying child for more than one person, only one taxpayer can claim the child as a dependent. So always make sure to ask the taxpayer if their dependents can be claimed by someone else. The taxpayer that claims that qualifying child can then claim the benefits.

Example: Joan, who is a U.S. citizen, adopted an infant boy from Cambodia who has lived with her for the entire tax year. Even though Joan's child is not yet a U.S. citizen or resident, he meets the citizen or resident test because he was a member of Joan's household for the entire year.

Doris, a U.S. citizen, is 8 years old and had a small role in a television series. She made $60,000 during the tax year, but her parents put all the money in a trust fund to pay for college. She lived with her parents all year. Does she meet the support test?

Yes, Doris meets the support test since the $60,000 in earnings were not used for her own support. Since she meets the tests for a qualifying child, she can be claimed as a dependent by her parents.

Qualifying Child of More Than One Person Test The benefits from the qualifying child cannot be split between the two taxpayers, only one can claim them all. To determine, apply these rules: – If only one of the taxpayers is the child’s parent, the child is the qualifying child of the parent. – If they are both the parent, but do not file a joint return, then either one can claim the child. – If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest Adjusted Gross Income (AGI). – If a parent can claim a child but no parent does, the child is treated as the qualifying child of the person who had the highest AGI, but only if that person’s AGI is higher than the highest AGI of any of the child’s parents who could claim the child. If the parents file a joint return together, this rule allows the parents to divide their combined AGI equally. If the child is claimed on more than one return, then the IRS will use these rules to determine who will receive the benefits.

Example: Since late in 2010, Sally has been supporting her friend, Ann, as well as Ann's young son, Bobby. Ann and Bobby lived with Sally all of 2011 and meet all the tests to be Sally's qualifying relatives. Ann worked part-time and made $3,100 in wages during Ann files a return only to have her withholding refunded. She does not claim her own exemption. Sally can claim Ann and Bobby as dependents.

Which of the following meets the member of household or relationship test for taxpayer John Smith? a.John Smith's 10 year old cousin who lives with John's parents, but is supported by John b.John's foster parent who did not live with John c.John's foster child who has lived with him for seven months and is cared for by John as his own d.John's great aunt who did not live with him

c. A foster child who has lived with the taxpayer for more than half the year (except for temporary absences) and has been cared for by the taxpayer as the taxpayer's own child meets the test.

Test for Qualifying Relative In addition to the dependent taxpayer, joint return, and citizen or resident test, there are four more test that must be met for a person to be a qualifying relative. – Not a qualifying child test – Member of household or relationship test: – Gross income test: – Support test: A qualifying relative can be of any age.

Not a Qualifying Child Test A child is not considered the taxpayer’s qualifying relative if the child is the taxpayer’s qualifying child or is the qualifying child of another taxpayer. However, there is an exception if the parent does not file a return or only files to get a refund of income tax withheld or estimated tax paid.

Member of Household or relationship Test Live as a member of the taxpayer’s household all year OR be related to the taxpayer as child, stepchild, foster child, sibling, stepsibling, parent, grandparent, stepparent, niece, nephew, uncle, aunt, son/daughter/father/mother/brother/sister-in-law. However, an unrelated person who lived with the taxpayer for the entire year can also meet the member of household or relationship test and live with the taxpayer all year.

Gross Income Test The dependent’s gross income for the tax year must be less than the personal exemption amount. This income includes money, property, and services that is not exempt from tax.

Support Test The taxpayer must have provided more than 50% of the person’s total support for the tax year. All types of income sources must be taken into consideration when applying this test. For instance, if the dependent receives social security benefits or has a savings accounts and spends it.

Multiple Support Agreements Form 2120 Only one taxpayer can claim the exemption for a dependent with multiple support. Each taxpayer who claim the exemption for a dependent must attach Form The taxpayers who provide more than 10% of the person’s support must sign Form 2120 agreeing not to claim the exemption for that year. The taxpayer who claims the exemption must keep a copy of the written statement for their records.

Example Randy's son, Paul, is not a qualifying child. Paul earned $6,800 from a part-time job. Does he meet the gross income test for a qualifying relative?

Answer No becausePaul does not meet the gross income test because his total income exceeds $3,700.

Example: You and your brother each provide 20% of your mother's support for the year. The remaining 60% of her support is provided equally by two persons who are not related to her. She does not live with them. Because more than half of her support is provided by persons who cannot claim an exemption for her, no one can take the exemption.

Divorced or Separated Parents or Parents Who Live Apart Usually the child is the qualifying child of the custodial parent. The child may be the qualifying child of the noncustodial parent if all the following apply: – The parents are divorced or legally separated under a decree of divorce or separated maintenance or separated under a written separation agreement or lived apart at all times during the last six months of the year. If the child received over half of his or her support for the year from the parents. The child is in the custody of one or both parents for more than half of the year. The custodial parent signs a declaration that he or she will not claim the child as a dependent for the year. The noncustodial parent must then attach this form in his or her return. (Form 8332). However, this form can be revoked by the custodial parent at any time. This is the exception to the residency test for qualifying child and the support test for qualifying relative.

Defining Custodial and Noncustodial Parent The custodial parent is the parent with whom the child lived for the greater number of nights. If the parents are divorced or separated and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights for the rest of the year. If the child lived with both parents equally, then the custodial parent is the parent with the higher AGI.

Unique Filing Status and Exemption Situations

Who does this apply to? Taxpayers who are not U.S Citizens. A taxpayer with a nonresident alien spouse. A taxpayer with a nonresident alien stepchild. These individuals must have a social security number or an individual tax identification number (ITIN).

Dependency Tests If a child is born overseas to U.S. citizen parents, then they are considered U.S. citizens for tax purposes. So they can be claimed as a qualifying child if all the other tests are met. Adopted children who are not U.S. citizens/resident aliens/national can be claimed as dependents if all the tests are met.

Spouse If the taxpayer is married and the spouse does not live in the U.S., they are still required to file as Married Filing Separately.