[ Pobierz całość w formacie PDF ]

of their own, since both George and Laura had such low incomes
that neither of them would have had a tax liability had they filed
separate returns.
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176 Tax Power for Individuals
The Gr oss Income T est
In order to be entitled to take an exemption for a dependent, the dependent
person cannot have gross income in excess of the amount of the exemption
deduction. However, a parent is allowed to claim an exemption for his or her
dependent child, regardless of how much the child earns, as long as that child
is either under the age of 19 at the end of the year or under the age of 24 at
year s end and a full-time student for at least five calendar months during the
calendar year. Even though parents may be allowed to take an exemption for
dependent children with incomes of their own, the result will be that the
children will not be allowed to take an exemption for themselves on their
own returns.
EXAMPLE: Rekah is a full-time student who lives with her parents and works
at a department store. She earns about $12,000 annually. She is 20
years of age. The fact that Rekah earns $12,000 will not prevent
her parents from claiming her as a dependent, but if they do,
Rekah will have to file her own tax return without claiming
herself as a dependent.
The Suppor t Test
To qualify to take an exemption deduction for a dependent, a taxpayer who
is otherwise qualified to take the exemption must usually provide more
than half of the support for that person. However, there are two exceptions
to this rule.
Multiple Suppor t Agr eements
If two or more otherwise qualified people together provide over 50% of a
party s support, but no individual person provides the party with over half of
his or her total support, any otherwise qualified person who provides over
10% of the party s support may claim the exemption for the dependent, as
long as every other qualified party who provided over 10% of the dependent s
support signs a Form 2120, Multiple Support Declaration, stating that they will
not claim the exemption for the dependent. An executed Form 2120 from
each otherwise qualified party who is not taking an exemption for someone
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Exemptions 1 77
whom they provided over 10% of their support to must be included with the
tax return of the taxpayer who does claim an exemption for the dependent.
Taxpayers should keep a copy of each Form 2120 for their own records as
well.
EXAMPLE: Yoko s four sons, Paul, John, Ringo, and George, fully support her.
Paul provides 45% of her support, John and George each provide
her with 20% of her support, and Ringo provides 15% of her
support. They decide to let Ringo claim Yoko as his dependent
and take an exemption deduction for her. As long as Paul, John
and George each sign a Form 2120 each year consenting to Ringo
claiming Yoko, he will be entitled to take an exemption deduction
for her if he meets the other requirements for doing so since he
provided over 10% of Yoko s support.
EXAMPLE: Mattie worked for two attorneys for many years. They decided to
retire and close their practice. Mattie was not yet old enough to
draw retirement benefits, so the attorneys agreed to provide Mattie
with 70% of her support for the next three years and her son
provided her with the remaining 30%. Since the attorneys do not
qualify to take an exemption for Mattie due to failing the rela-
tionship test, neither of them will be eligible to take an exemption
for Mattie, even if her son and the attorney who did not take the
exemption had executed a Form 2120. Mattie s son will not be
eligible to take an exemption for his mother, even if the attorneys
were to execute a Form 2120, since over half of her support is
provided by individuals who do not qualify to take an exemption
for supporting her. No one will be allowed to claim an exemption
for supporting Mattie.
Children of Divor ced or Separated Par ents
Normally, if a child s parents are divorced, legally separated under a written
separation agreement, or living apart for the last six months of the calendar
year, the parent who had custody of the child for the larger part of the year
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178 Tax Power for Individuals
will be considered to have provided over half of the child s support and will
be entitled to claim the child as a dependent for tax purposes. This rule will
apply if the noncustodial parent can show that he or she actually provided
over half of the child s support for the year.
If there is a divorce decree or a decree of separate maintenance that states
which party will be entitled to claim an exemption for the couple s
dependent children, that decree will govern. In the absence of such a decree,
if there is a written separation agreement designating which parent will
receive the exemption for each child, it will govern. A parent who has the
right to claim a child as a dependent and take an exemption deduction, either
by court decree or agreement, or based on custody, may relinquish that right
to the other parent for any number of years by executing a Form 8332. This
form must be attached to the tax return of the party who obtains the right to
take the exemption.
THE PHASEOUT OF EXEMPTIONS
Taxpayers whose adjusted gross income exceeds an amount that Section
151(d)(3)(B) refers to as the threshold amount must reduce their exemption [ Pobierz całość w formacie PDF ]