Chapter 4 Homework – Individual Taxation David and Lilly Fernandez have determined their tax liability on their joint tax return to be $3,100. They have made prepayments of $2,015 and also have a child tax credit of $3,000. What is the amount of their tax refund or taxes due? David and Lilly will receive a tax refund of $1,915, calculated as follows: Tax refund = $3,100 − $3,000 − $2,015 = ($1,915) Prepayments are fully refundable when payments exceed the taxes after credits because the refundable amount is essentially an overpayment of taxes. Aishwarya’s husband passed away in 2020. She needs to determine whether Jasmine, her 17-year-old stepdaughter, who is single, qualifies as her dependent in 2021. Jasmine is a resident but not a citizen of the United States. She lived in Aishwarya’s home from June 15 through December 31, 2021. Aishwarya provided more than half of Jasmine’s support for 2021. a. Is Aishwarya allowed to claim Jasmine as a dependent for 2021? Yes, Aishwarya may claim a Jasmine as a dependent in 2021. Jasmine meets the citizenship/residency test because she is a resident of the United States, and she meets the requirements to be considered Aishwarya’s qualifying child as follows: Test Relationshi p Age Residence Support Jasmine Yes, stepdaughter qualifies. Jasmine is under 19 at the end of the year. Jasmine had the same principal residence as Aishwarya for more than half the year. Jasmine does not provide more than half of her own support. b. Would Aishwarya be allowed to claim Jasmine as a dependent for 2021 if Aishwarya provided more than half of Jasmine’s support in 2021, Jasmine lived in Aishwarya’s home from July 15 through December 31 of 2021, and Jasmine reported gross income of $5,000 for the year? No. Jasmine would fail the qualifying child test because she did not have the same principal residence as Aishwarya for more than half the year. Jasmine would fail the qualifying relative test because her gross income is not less than $4,300. c. Would Aishwarya be allowed to claim Jasmine as a dependent for 2021 if Aishwarya provided more than half of Jasmine’s support in 2021, Jasmine lived in Aishwarya’s home from July 15 through December 31 of 2021, and Jasmine reported gross income of $2,500 for the year? Yes, Jasmine would qualify as Aishwarya’s qualifying relative as follows: Test Relationship Support Gross income Jasmine Yes, stepdaughter qualifies. Aishwarya provided more than half of Jasmine’s support. Jasmine’s gross income for 2021 is less than $4,300. The Samsons are trying to determine whether they can claim their 22-year-old adopted son, Jason, as a dependent. Jason is currently a full-time student at an out-of-state university. Jason lived in his parents’ home for three months of the year, and he was away at school for the rest of the year. He received $9,650 in scholarships this year for his outstanding academic performance and earned $4,890 of income working a part-time job during the year. The Samsons paid a total of $5,120 to support Jason while he was away at college. Jason used the scholarship, the earnings from the part-time job, and the money from the Samsons as his only sources of support. Can the Samsons claim Jason as their dependent? a. Yes, the Samsons may claim Jason as their dependent. He is their qualifying child. See the following analysis. Test Relationshi p Age Residence Support b. Jason Yes, adopted son qualifies. Yes, under age 24 and a full-time student (and younger than parents). Yes, temporary absences away at school count as time in the parents’ home. Yes. The Samsons provided $5,120 of support for Jason. Jason provided $4,890 of his own support (Jason did not provide more than half of his own support). Jason also received $9,650 of scholarship money, but this does not count as support provided for himself because he is an actual child of the Samsons. Assume the original facts except that Jason's grandparents, not the Samsons, provided Jason with the $5,120 worth of support. Can the Samsons (Jason’s parents) claim Jason as their dependent? Yes, the Samsons may claim Jason as their dependent. Jason is their qualifying child. See the following analysis. Test Relationshi p Age Residence Support Jason Yes, Jason is their (adopted) son. Yes, under age 24 and a full-time student (and younger than his parents). Yes, temporary absences away at school count as time in the parents’ home. Yes, even though Jason’s parents did not provide any of his support, Jason did not provide more than half of his own support because his grandparents provided $5,120 of support for Jason. Jason provided $4,890 of his own support. Jason also received $9,650 of scholarship money, but this does not count as support provided for himself because he is an actual child of the Samsons, who are claiming him as a dependent. John and Tara Smith are married and have lived in the same home for over 20 years. John’s uncle Tim, who is 64 years old, has lived with the Smiths since March of this year. Tim is searching for employment but has been unable to find any—his gross income for the year is $2,000. Tim used all $2,000 toward his own support. The Smiths provided the rest of Tim’s support by providing him with lodging valued at $5,000 and food valued at $2,200. a. Are the Smiths able to claim Tim as a dependent? Yes. The Smiths may claim Tim as a dependent as a qualifying relative as analyzed below. Test Relationship Age Residence Support Gross income Tim Yes, Tim meets qualifying relative test. Not applicable to qualifying relative. Not applicable to qualifying relative. Yes. The Smiths provided more than half of Tim’s support ($7,200/$9,200 = 78%). Yes, Tim’s gross income is less than $4,300. b. Assume the original facts except that Tim earned $10,000 and used all the funds for his own support. Are the Smiths able to claim Tim as a dependent? No. The Smiths may not claim Tim as a dependent because he is not a qualifying relative as analyzed below. Test Relationship Age Residence Support Gross income Tim Yes, Tim meets qualifying relative test. Not applicable to qualifying relative. Not applicable to qualifying relative. No, the Smiths did not provide more than half of Tim’s support ($7,200/$17,200 = 42%). No, Tim’s gross income of $10,000 is not less than $4,300. Juan and Bonita are married and have two dependent children living at home. This year, Juan is killed in an avalanche while skiing. a. What is Bonita’s filing status this year? Married filing jointly. For tax purposes, the couple is still considered married for the year of the spouse’s death. b. Assuming Bonita doesn’t remarry and still has two dependent children living at home, what will her filing status be next year? Qualifying widow. See the analysis below. Qualifying widow test: Test Bonita Time Yes, within two years after the end of the year of the death of Juan. Unmarried Yes, Bonita has remained unmarried. Dependents Yes, Bonita maintains a home for her two dependent children. c. Assuming Bonita doesn’t remarry and doesn’t have any dependents next year, what will her filing status be next year? Single. Because Bonita is not a qualifying widow and is not married, she must file as a single taxpayer. See the analysis below. Qualifying widow test: Test Bonita Time Yes, within two years after the end of the year of the death of Juan. Unmarried Yes, Bonita has remained unmarried. Test Dependents Bonita No, Bonita does not maintain a home for any dependent children. Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills relating to Irene’s home. He also buys all her groceries and provides the rest of her support. Irene has no gross income. a. What is Elroy’s filing status? Head of household. An unmarried taxpayer may qualify as head of household by paying more than half the costs of maintaining a separate household that is the principal place of abode for the taxpayer’s mother or father if the mother or father also qualifies as a dependent of the taxpayer. Elroy pays more than half the costs of maintaining Irene’s household. Furthermore, Irene qualifies as Elroy’s qualifying relative as follows: Test Relationship Age Residence Support Gross income Irene Yes, Irene is Elroy’s mother. Not applicable to qualifying relative. Not applicable to qualifying relative. Yes, Elroy provides more than half of Irene’s support. Yes, Irene’s gross income is less $4,300. b. Assume the original facts except that Elroy has taken over the care of his grandmother, Renae, instead of his mother. What is Elroy’s filing status? Single. To qualify as head of household, an unmarried taxpayer must pay more than half the costs of keeping up a home for the year and must have lived with a qualifying person in the taxpayer’s home for more than half the year (unless the qualifying person is a mother or father and then special rules apply). Because Elroy did not live in the same home for more than half the year, Renae is not a qualifying person for purposes of determining whether Elroy qualifies as for the head of household filing status. Consequently, Elroy will file as a single taxpayer. c. Assume the original facts except that Elroy’s mother, Irene, lives with him and receives an annual $6,025 taxable distribution from her retirement account. Elroy still pays all the costs to maintain the household. What is his filing status? Test Relationship Irene Yes, Irene is Elroy’s mother. Test Irene Age Not applicable to qualifying relative. Residence Not applicable to qualifying relative. Support Yes, Elroy provided more than half of Irene’s support. Gross income No, Irene’s gross income of $6,025 is more than $4,300. Single. Although Elroy provides more than half the cost of maintaining a household in which his mother lives, she does not qualify as his dependent. She is not Elroy’s child (and she is older than him) and thus cannot be a qualifying child. Further, she is not a qualifying relative, as analyzed below.
