The biggest and nastiest tax battle divorced or separated taxpayers face is over which person gets the rights to the tax credits for children and dependents. One particularly underhanded trick that is often played involves one person filing taxes in early January to grab the dependents and tax credits before the custodial parent files a legitimate tax return.
Here’s a short quiz to see how much you know about your right to claim your dependents, both young and old. The quiz, which is drawn from the Fast Forward Academy bank of practice questions for the IRS enrolled agents exam and the Gleim Enrolled Agents practice questions and answers, covers a number of common issues.
1) Milton is 39 years old. He has been divorced from his wife since March 1 of the tax year. He and his ex-wife have two minor children. One child lives with Milton and the other child lives with the mother. The children have been with their respective parents from March through December of the tax year. Milton provides all of the support for the minor child living with him. The filing status with the lowest rate for which Milton qualifies is:
A. Married filing separately
C. Head of household
D. Married filing jointly
2) Thomas and Rebecca are the parents of four children, ages 10, 12, 15, and 22. Their 22-year-old child is a full-time student with income of $5,600. Thomas and Rebecca provided more than 50 percent of the support for all their children. If they file a joint return, how many exemptions can they claim for the above family members?
3) Mrs. Brown had taxable income of $600, Social Security benefits of $1,800, and tax-exempt interest of $200. She used all of these amounts for her own support. Her son paid the rest of her support. Which of the following amounts of support paid by her son would meet the support test to allow him to claim Mrs. Brown as a dependent?
4) Mr. and Mrs. Green filed a joint return. During the year, they provided more than 50 percent of the support for the following individuals, all of whom are U.S. citizens:
- The Greens’ daughter, age 23, who was a full-time student for eight months. During the summer, she earned $4,600, which was spent on her support.
- Mr. Green’s cousin, age 16, who lived with them from March through December.
- Mr. Green’s widowed mother, age 70, who lived with them and had no income.
- The Greens’ daughter, age 22, who lived with them for the full year. She had gross income of $4,100.
- Mrs. Green’s widowed father, age 64, who lived alone. His sole source of income was $4,200 of Social Security.
How many exemptions may Mr. and Mrs. Green claim on their tax return?
1. Correct answer: C, head of household
Because Milton is not married at the end of the year, he cannot file as married filing separately or married filing jointly. Head of household is better than single as a filing status in terms of tax rates, and all tests for head of household are met.
2. Correct answer: C, six exemptions
All are entitled to an exemption. Thomas and Rebecca may each claim a personal exemption, and they are entitled to one dependency exemption for each qualifying child. The children are dependents because they meet the definition of a qualifying child as outlined below:
Relationship test: The child must be a son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, or stepsister, or a descendant of any of them.
Age test: The child must be under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student, or any age if permanently and totally disabled.
Residency test: The child must have lived with the taxpayer for more than half of the year. A child who was born or died during the year passes this test if the home was the child’s home the entire time he or she was alive during the year.
Support test: The child cannot provide more than half of his or her own support.
3. Correct answer: B, $2,700
A dependent under the qualifying relative rules is defined in Section 152(a) of the Internal Revenue Code, which requires the taxpayer to provide over one-half of the support of the individual. Mrs. Brown’s son must give her more than $2,600 of support in order to satisfy this requirement (see Publication 501 for further details).
4. Correct answer: A, five exemptions
To qualify for the dependency exemption, a taxpayer must provide more than 50 percent of the support to a U.S. citizen who meets certain relationship and residency tests stated in Section 152(a).
Based on the relationship tests and income limits, Mr. and Mrs. Green are entitled to one exemption for their 23-year-old daughter (because she is a full-time student under 24 years of age); Mr. Green’s widowed mother; and Mrs. Green’s father (because Social Security is not included in determining the gross income limit). They are also entitled to two personal exemptions (one each for themselves), for a grand total of five exemptions.
The cousin does not qualify under the relationship test because she was not a member of the household for the entire calendar year, and the 22-year-old daughter does not qualify because her income exceeds the exemption amount outlined in Section 151(c) of the Internal Revenue Code (see Publication 501).
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.