Question

A client hired you to file an individual tax return. The client is a divorced single custodial parent with two children. The client claims they are entitled to the dependency deduction for the children. The ex-spouse of your client contends it is their right to claim the dependency deduction for the children on their tax returns.

• Explain in detail which one has the right to claim the dependency deduction for the children relying on the applicable income tax laws.
• Communicate the findings to both parties and provide support for the decision based on applicable tax laws.
• Explain why it is more advantageous to elect joint filing status as a married couple rather than separate filing status.
• Describe in detail the election of “head of the household” filing status

Answer 1

Answer :-

Why claim someone as a dependent?

If you have a family, you need to know how the IRS defines “dependents” for income tax purposes. Why? Because it could save you thousands of dollars on your taxes. savings on your tax bill.

Beginning in 2018, exemptions have been replaced by:

• an increased standard deduction
• a larger Child Tax Credit (now worth up to $2,000 per qualifying child)
• a bigger Additional Child Tax Credit (up to $1,400 per qualifying child)
• as well as a new Credit for Other Dependents, which is worth up to $500 per qualifying dependent (not to be confused with the Child and Dependent Care Credit)

Dependent rules also apply to other benefits:

• such as the Earned Income Tax Credit
• the Child and Dependent Care Credit for daycare expenses
• medical expenses, various other itemized deductions and most tax credits that involve children or family issues

Who qualifies as a dependent?

The IRS rules for qualifying dependents cover just about every conceivable situation, from housekeepers to emancipated offspring.

Fortunately, most of us live simpler lives. The basic rules will cover almost everyone. Here’s how it all breaks down.

There are two types of dependents, each subject to different rules:

• A qualifying child
• A qualifying relative

For both types of dependents, you’ll need to answer the following questions to determine if you can claim them.

• Are they a citizen or resident? The person must be a U.S. citizen, a U.S. national, U.S. resident, or a resident of Canada or Mexico. Many people wonder if they can claim a foreign-exchange student who temporarily lives with them. The answer is maybe, but only if they meet this requirement.
• Are you the only person claiming them as a dependent? You can’t claim someone who takes a personal exemption for himself or claims another dependent on his own tax form.
• Are they filing a joint return? You cannot claim someone who is married and files a joint tax return. Say you support your married teenaged son: If he files a joint return with his spouse, you can’t claim him as a dependent.

Qualifying child

In addition to the qualifications above, to claim an exemption for your child, you must be able to answer "yes" to all of the following questions.

• Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
• Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
• Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
• Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.
• Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.

Conclusion :-

The inclusion of qualified dependents on your tax return is one of the best tax benefits available. It can open the door to a large number of tax credits and deductions that can lower your tax bill. They will ask you simple, plain-English questions about your family and will determine for you who qualifies as a dependent on your tax return, so you can be sure you’re getting the biggest refund you deserve.

Hence our client who has the custody of childrens can claim the deduction and his ex wife cannot claim the same.

Married couple - is it better to file taxes jointly and separately.

In some cases married filling separately versus jointly is better option for couples.

Filing jointly may qualify you for a lower tax bracket, but you might want to file separately under certain circumstances.

FOR MARRIED COUPLES, combining finances is a smart way to streamline expenses. But at tax time, couples face a tricky question: File jointly or separately?

Knowing which status to choose – married filing jointly or married filing separately – isn't always cut and dry. However, figuring out which way to go can result in many tax benefits. In most cases, married couples should file their taxes jointly in order to qualify for better tax breaks and ultimately reduce their overall tax liability..

Reasons to File Jointly

1. You may qualify for a lower tax bracket.

If you earn a much higher income than your spouse (or vice versa), filing jointly often helps you qualify for a lower federal income tax bracket compared to brackets for married couples who file separately.

2. You will receive more credits and deductions.

Several tax credits and deductions are only available for married couples who file together, such as the earned income tax credit, child and dependent care credit, education credits, credit for adoption expenses and student loan interest deductions. If you're planning to take the standard deduction, couples who choose to file jointly will receive $24,400 as compared to just $12,200 for those married filing separately couples.

3. You can deduct a bigger capital loss.

If you're planning to claim a capital loss deduction, your limit is $3,000 when you choose to claim a married filing jointly status. Comparatively, this limit drops to $1,500 when filing separately and this savings can help reduce your overall tax bill.

4. You can deduct retirement account contributions.

A taxpayer's deduction for an IRA phases out when adjusted gross income is between $0 and $10,000 when filing separately, Firth says. However, if the couple files jointly, the phase-out range falls between a significantly higher adjusted gross income, between $103,000 and $203,000, depending on if the spouse is covered by a qualified plan.

5. It's more convenient and less expensive.

In addition to the tax-saving benefits for filing jointly as a married couple, preparing one tax return is ultimately easier and less expensive. If a couple files separately and one spouse has to itemize, the other partner is required to itemize as well. Plus, the fees you pay and the time it takes to file double when you file separately.

Reasons to File Separately

1. You have hefty medical bills.

If you experienced high out-of-pocket medical bills, filing separately may allow you to take a significant deduction. "You aren't able to deduct medical expenses until they exceed 10% of your adjusted gross income, so you may be better off to file separately so that the spouse with the lower income can deduct the medical expenses on their own return.

2. You don't want to be responsible for each other's tax liabilities.

When you file jointly with your spouse, you're on the hook for his or her tax bill. "By filing jointly, you effectively guarantee your spouse's tax bill at the end of the year and there are some circumstances, such as anticipated divorce or separation, in which one couple may feel uncomfortable doing so," McInnis says.

3. You or your spouse owes child support.

If either you or your spouse owe unpaid child support, filing separately can protect your refund from being offset by the IRS to pay the taxes on it. "Filing separately can protect one spouse's tax refund against the other's creditor claims," Mullaley says.

4. You want to keep your property and assets separate.

When each spouse has considerable assets and doesn't want to blend them, or they have children from a previous marriage and want to make sure their property is separate for passing down to their respective children, filing separately is key.

5. You have qualified business income.

If you or your spouse received qualified business income, filing jointly may mean you're phased out of receiving this deduction, Mullaley says. If one spouse has a large income and the other has a more modest.

6. You earn the same income as your spouse.

Figuring out how to qualify for a lower tax bracket is a numbers game, and when both spouses work and earn the same income, they may find they pay a lower tax bill if they file separately.

Head of Household :-

The head of household status can lead to a lower taxable income and greater potential refund than the single filing status, but to qualify, you must meet certain criteria. To file as head of household, you must:

• Pay for more than half of the household expenses
• Be considered unmarried for the tax year, and
• You must have a qualifying child or dependent.

Some of these terms, such as "considered unmarried" and "qualifying child or dependent" may seem a bit confusing, but the IRS has provided a series of guidelines to help taxpayers understand whether or not they qualify to file as head of household.