Question

**Use pre2018 tax rules deductions, standard deductions, exemptions and other rules for computing.*** Thought I had this assignment done and then it got sent back so I am unsure on how to complete it.

Option #1: Dependency and Personal Exemptions

Read the following tax problem and answer items a-d.

Bob and Donna have been married for 35 years and have filed joint returns since their marriage. The couple has three children: Jack (age 11), Bonnie (age 16), and Margie (age 22). All three children live with Bob and Donna. In addition, none of the children provide more than half of their own support. Margie is a full-time student at a local university and does not have any gross income.

Based on the situation above, answer the following questions:

a. How many personal exemptions can Bob and Donna claim?

b. Assume the original facts, except that Margie is married. She and her husband live with Bob and Donna and they file a joint return. They have a $2,000 tax liability for the year. Can Bob and Donna claim Margie as a dependent on their tax return? Why or why not?

c. Assume the same facts in (b), except that Margie and her husband report no tax liability on their joint return. Also, if the couple had filed separately, Margie would not have had a tax liability on her return, but her husband would have had a $550 tax liability on his separate return. Can Bob and Donna claim Margie as a dependent on their tax return? Why or why not?

d. Assume the original facts except that Margie is married. Margie files a separate tax return. Margie’s husband files a separate tax return and reports a $550 tax liability on the return. Can Bob and Donna claim Margie as a dependent? Why or why not?

Requirements

Clearly identify the requirements being addressed. Explain each of your conclusions and cite appropriate authority to support your position.

Answer 1

A.

There is no personal exemption available as per IRS. However exemptions are available as credits for parents:

Standard exemption are allowed if they are under qualifying conditions prescribed under the Rule.

Qualifying test is met when

* child is younger than 19 years or

* A student is younger than 24 years.

Hence,

Jack Is a qualifying Child as under 19 and meet conditions.

Bonnie Is a qualifying Child as under 19 and meet conditions.

Margie even above 19 But Below 24 and a Student with no income.

B.

Margie is no more a dependent because she is married and hence Bob and Donna cannot claim exemptions claiming Margie as their dependent. Hence, Bob and Donna have a tax liability of $2000

C.

In order to claim deduction, Margie has to fulfill certain conditions to be qualified for dependent.

1. A student is younger than 24 years. Margie is only 22 years.

2. She must have lived with her parents for more than half of the Year - It is assumed in the given case that she had satisfied this condition due to lack of information.

3. She does not Contribute more more than half of her support -Yes Satisfied as it is clearly mentioned in the question that none of the Children provide more than half their own support.

4.. Daughter and her Husband where not filing a joint return unless they are filing only to claim refund of taxes which has been withheld from their paychecks. - Here there are two cases:

. They where not filing Jointly - In this case, Bob and Donna can claim Margie on their return because all the above conditions were satisfied.

. If in case they have filed separately - Margie have no tax liability on her return but her husband have tax liability of $ 550. In such a case, Bob and Donna cannot claim Margie on their return because all the above conditions were satisfied but not the 4th Condition.

D.

Dependent means Qualified child or Qualified relative:

Conditions are:

1.  she should have relationship with the taxpayer

2. she should have same principal place with the tax payer more than one half of the tax payable year

3. satisfies age requirements - for students up to 24 years can claim as dependent.

4. who not provide one half of individual own support.

Hence since all the above conditions are satisfied, Bob and Donna can claim Margie as their dependent and she is also filing a separate tax return.