EXERCISES •Standard •Filing deduction status •Exemptions STANDARD DEDUCTION EXERCISE All of the following factors determine the amount of a taxpayer's standard deduction EXCEPT _____. a. b. c. d. The taxpayer's filing status The taxpayer's gross income Whether the taxpayer is 65 or older, or blind Whether the taxpayer can be claimed as a dependent EXERCISE Michael is single, 22, cannot be claimed by another taxpayer, and has no itemized deductions. What is his standard deduction for the tax year? a. b. c. $5,700 $7,850 $3,000 EXERCISE Nicole is 35, has two children, and qualifies for the Head of Household filing status. She will not itemize any deductions. What is her standard deduction for the tax year? a. b. c. $5,700 $8,400 $11,150 EXAMPLE Janet is single, 22, a full-time student, and not blind. Her parents claimed her as a dependent . She has no itemized deductions, so she will take the standard deduction. She has interest income of $120, taxes withheld of $35, and wages of $780. Her standard deduction is $1,080 ($780+$300). FILING STATUS EXERCISES Who may choose to file under either the Married Filing Jointly or the Married Filing Separately status? a. b. c. A married taxpayer whose spouse who does not have income A divorced taxpayer who itemizes deductions Taxpayers who are legally separated and share child custody Tom and Judith Ballard want to file under the Married Filing Separately status. If Tom wants to itemize his casualty losses, then _____. a. b. c. d. They will have to file jointly Judith must take the standard deduction Judith must either itemize her deductions or claim a zero standard deduction None of the above EXERCISES Samantha is divorced and provided over half the cost of keeping up a home. Her daughter, Pam, lived with her for seven months last year. Samantha has signed a written declaration allowing her ex-husband to claim the child as a dependent . Can she file as Head of Household? EXERCISES Peggy's only source of income is welfare, but she manages to pay more than half the cost of keeping up a home for her niece Trina, a qualified dependent relative. Can Peggy file as Head of Household? Alexandra's 17 yr old unemployed brother, lived with friends from January-February. From March-July, he lived with Alexandra. On August 1, he moved back in with his friends for the rest of the year. Alexandra gave him money every month. Assuming Alexandra had no other dependents, can she file as Head of Household for 2009? EXERCISES Which dependent relative may qualify a taxpayer for head of the household filing status? Daughter-in-law who lives across town A long time family friend who lives with the taxpayer Father who lives in his own home and not with the taxpayer Child who lived with taxpayer 3 months of the tax year Debbie has a child and separated from her husband during the tax year. Which of the following would prevent Debbie from filing Head of Household? Debbie has maintained a separate residence from her husband since April of the tax year The qualifying child's principal home is now with Debbie Debbie's parents assisted with 25% of the household costs The child lived with Debbie beginning in mid-July of the tax year EXERCISES For the past two years, Hank has lived with his two dependent children, whom he supports, and apart from his wife, Tonya. If Hank and Tonya file a joint return, can Hank file as Head of Household? Ginger is single and paid more than half the cost of keeping up her home. Her grandfather, whom she claimed as a dependent, lived with her all year. Which filing status should Ginger use? a. Single b. Head of Household Franklin is single and lives alone. He paid more than half the cost of maintaining a home for his father for the entire year, but he does not claim his father as a dependent. Which filing status should Franklin use? EXERCISES John Reed's wife died during the prior tax year. Which questions would help determine if he can file as a Qualifying Widow(er) with Dependent Children? Did John file a separate return the prior tax year What is John's source of income to maintain the home? Will John remarry in the next two years? Does John maintain a home for a dependent child? In 2004, Claudia and her husband Ray adopted Rachel. Although eligible to file jointly, Claudia and Ray always filed separately. In January 2008, Ray died. Claudia continued to support Rachel and did not remarry. Which filing status should Claudia use for 2008 Qualifying Widow(er) With Dependent Child Either Married Filing Jointly or Married Filing Separately Head of Household Single EXERCISES Martin and Rita got divorced in December, and neither has remarried. Martin supported Rita all year. Which of the following filing statuses might Martin be able to use? Single or Married Filing Separately Married Filing Jointly or Married Filing Separately Single Kathy, divorced with no children, lived with her unemployed roommate, Sandra, for the entire year. Kathy had to pay more than half of the cost of keeping up their apartment. Which filing status can Kathy use? Head of Household Married Filing Separately Single EXERCISES Jack has lived apart from his wife for several years. Their children live with his wife, but Jack pays more than half of the children's support. Which filing status can Jack use? Head of Household Married Filing Separately or Married Filing Jointly Single Lily left her husband in August of the tax year. She took all her children with her, supported them the entire year, and claims them as dependents. She will not file a joint return with her husband. Which filing status should Lily use? Head of Household Married Filing Jointly Single Married Filing Separately EXEMPTIONS EXERCISES John is a 23-year-old single college student. His mother is entitled to claim him as a dependent on her tax return. Is John entitled to claim himself as a personal exemption on his own return? EXERCISES Janice is 18 years old and a full-time student. She comes into the Volunteer Tax Office with some questions about her tax return. She says that she is claimed as a dependent on her parents' tax return. Over the summer, she worked full time in a clothing boutique. Janice wants to file Form 1040EZ to report this income. How many exemptions will you indicate for Janice on her tax return? Zero One Two Three EXERCISES True or False? Jennifer Rawls, an eighteen-yearold single mother who can be claimed as a dependent by her parents, can claim her infant son as a dependent on her own tax return. EXAMPLE Ruth, who had no income, got married in November of the tax year. Ruth's husband had $16,700 income and they claimed two personal exemptions on their return. Ruth's father supported her and paid for the wedding, but he cannot claim her as a dependent because she is filing a joint return with her husband. While they are filing a return just to claim a refund of taxes withheld, Ruth's husband would have tax liability if he filed a separate return. EXERCISES Bob is 22 and a full-time student for the entire year. During the tax year, he lived at home with his parents for six months and lived in the dorm for the remaining six months. During the tax year, he worked part-time and earned $6,000, but that income did not amount to half of his total support. Does Bob pass the tests for a qualifying child EXAMPLES Joe is 65 years old and lives with his son and daughter-in-law. In 2009, Joe's taxable pension income was $4,700. Can they claim Joe for dependency exemption? Sherrie's father received $2,700 from social security and investments, but he put $300 of it in a savings account and spent only $2,400 for his own support. Sherrie spent $2,600 of her income for his support. Is he a qualifying relative? What if all the facts were the same as in this example, except that Sherrie's father had spent all his income on himself? EXAMPLES Jessica has been raising her son, Jim, alone since her husband died 5 years ago. In 2009, Jessica earned $25,000. Jim, who lives with Jessica, is single, and does not provide more than half of his own support. He was 19 years old on September 17, 2009. Jim is not a full-time student and is not disabled. He worked for a short time at a fast food restaurant and made about $1,800. Jessica and Jim are both U.S. citizens and have SSNs. Is Jim the qualifying child or qualifying relative of Jessica? Jim meets the requirements for being Jessica's qualifying relative. Jim is Jessica’s qualifying child since he is her son. EXERCISES Doris, who is 8 years old, has 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 at home all year. Does she meet the support test? What if Doris, an 8-year-old actress, earned $60,000 during the tax year, but her parents used the money to defray household expenses: would she meet the support test? EXAMPLE Bob and Judy live together, they are not married. They have one child together, Katie, who is 4 years old. Bob, Judy, and Katie are U.S. citizens and have SSNs. Katie did not provide her own support and lived with her parents all year. Bob’s AGI is $18,500 and Judy’s AGI is $14,000. Neither Bob nor Judy can be claimed as a dependent by any other taxpayer. They did not have any investment income. Bob pays for Katie's daycare so he and Judy can work. Bob pays over half of the costs of maintaining their home. Who may claim Katie as their qualifying child, and what can be claimed on the return. EXAMPLE - OPTIONS Only Bob can claim Katie as a dependent. Only Judy can claim Katie as a dependent. Katie is a qualifying child for both Bob and Judy. They agree that Bob should claim Katie. He can claim the Head of Household filing status, the dependency exemption, the Child Tax Credit, the child and dependent care credit, and the Earned Income credit. Judy can claim the dependency exemption, Child Tax Credit, and Earned Income Credit for Katie, and Bob can claim the Head of Household filing status and the dependent care credit. EXAMPLE Mary and Ralph were divorced in 2003. They have one child together, Amy, who lives with Mary. All are U.S. citizens and have SSNs. Mary and Ralph provide more than half of Amy’s support. Mary’s AGI is $31,000 and Ralph’s AGI is $39,000. Amy is 12 years old. The divorce decree does not state who can claim the child. Who may claim Amy as a qualifying child along with the tax benefits? EXAMPLE - OPTIONS Ralph can claim Amy as a dependent and the tax benefits. Ralph and Mary must choose who will claim Amy as a dependent and any other benefits. Mary signed Form 8332 to give the dependency exemption to Ralph. He can claim Amy as a dependent and he can claim the child tax credit. Mary can use the Head of Household filing status, and she can claim the Earned Income Credit and the child and dependent care credit as long as she meets the requirements for those specific benefits. Neither Ralph nor Mary can claim Amy as a dependent or any of the other benefits. EXAMPLE Todd has lived all year with his girlfriend, Eva, and her two children, in his home. This cohabitation does not violate local laws. Eva is not required to file, and does not file, a tax return. Todd has provided more than half of their support for the entire year. Eva and her two children are Todd's qualifying relatives because they meet the member of household or relationship test, gross income test, and support test. EXAMPLE 2 What if all the facts were the same as in the previous example, except that Eva is required to file a tax return? She still meets all the tests to be Todd's qualifying relative; however, since Eva has a filing requirement—and her children meet the qualifying child tests to be her dependents—Todd could not claim the children as qualifying relatives. He could still claim Eva as a dependent, but then Eva could not claim herself or any dependents. EXERCISE Since late in 2008, Sally has been supporting her friend, Ann, as well as Ann's young son, Bobby. Ann and Bobby lived with Sally all of 2008 and meet all the tests to be Sally's qualifying relatives. Ann worked part-time and made $3,100 in wages during 2009. Ann files a return only to have her withholding refunded. She does not claim her own exemption. Who can Sally claim as dependents? What if all the facts were the same as in the previous example, except that Ann also claims the Earned Income Credit? EXERCISE - ANSWER Because Ann did not file her return simply to get a refund of her withholding, Bobby must now be considered Ann's qualifying child. Therefore, Sally cannot claim Bobby as a dependent, and Ann cannot claim Bobby as a dependent either, because she is a dependent herself. Ann can, however, use Bobby as a qualifying child for the Earned Income Credit (Earned Income Credit is covered in the Earned Income Credit lesson).