Question

Polly maintains a household in which she lives with her unemployed husband (Nick), stepdaughter (Paige) and her cousin (Maude). Polly provides more than one-half the support for both Paige and Maude.

Maude was fatally injured in an automobile accident in May. Before Maude died she had received $5,000 Social Security, $3,500 pension, $500 in dog-walking fees and $400 in municipal bond interest.

Paige is an accomplished gymnast. She graduated high school last year. Page has a part-time job but spends most of her time training. She currently attends junior college on a part-time basis. Next semester she is going to a 4-year school on a full scholarship.

In March, Nick left for parts unknown and has not been heard from since. He provides Polly with no financial support. Polly decides to sell her wedding rings. The rings cost $11,800. The rings were sold for their approximate value of $9,000

Polly is a school vice principal. Her salary is $95,000. The school system also pays for Polly’s health insurance ($12,000 premium) and her pension plan ($5,000). (Health insurance and qualified retirement plans are nontaxable fringe benefits.)

1) Can Polly claim Maude as a dependent? Explain your answer.

2) Can Polly claim Paige as a dependent? Do you need any additional facts to give your answer?

3) What is Polly’s income tax filing status?

4) What is the amount of Polly’s deduction from AGI?

5) What is Polly’s income tax for the year before applying any tax credits? Assume that Polly takes the standard deduction.

Answer 1

Part 1

As per the rules there are some requirements to be fullfilled to claim a child a dependent :

1. They must be a U.S. citizen, U.S. national, or a resident alien.

2. The child has to have lived with you for at least half of the year.

3. The child has to be related to you as a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of those.

4. The child must be 18 or younger at the end of the year, or under 24 if a student. To be a student, the child must have attended school full-time during at least five months of the year. The five months don’t have to be in a row.

5. Finally, you must provide more than half of his or her financial support during the year.

So as per the above requirements, Maude is stepdaughter of Polly and more than half og her financial support is provided by Polly so Polly can claimed her as a dependent.

Part 2  

As per the rules, if a cousin is not your foster child then you will not be able to claim as a dependent as qualifying child.

A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

However, he will be considered as Qualifying relative to become dependent for which the requirements are as follows :

1.They can’t be a qualifying child.

2.They have to earn less than the personal exemption amount during the year, which for was $4,050.

3.You must also provide more than half of the total support.

4.If they are married, they cannot file a joint return with their spouse (this would be double counting).

5.They must be related to you in some way (the laundry list includes every conceivable familial relationship you can think of) or live with you for the entire year.

6.They have to be a citizen or resident alien of the United States, Canada, or Mexico.

7.Someone other is not treated as dependent.

More than half of the Financial support of Paige is supported by Polly and he lived with her during the year

There is no imformation of income of Paige in question so he will be treated as Qualifying relative if his total income is less the above specified amount.

Part 3

You should file either:

• Married filing jointly (MFJ)
• Married filing separately (MFS)

If you’re married filing separately, you’ll probably lose some tax benefits. Many tax benefits are available only to couples who use married filing jointly.

However, if you’re married filing jointly, both you and your spouse have joint and several liability.

This means:

• Both of you are responsible for the taxes and interest or penalties due on the return.
• You’d both be responsible for any underpayment of tax that might be due later.
• If one spouse doesn’t pay the tax due, the other might have to.

If you decide to file separately, one of you might be eligible for head of household status. Head of household filing status applies to you when both of these are true:

• Your spouse didn’t live in your home during the last six months of the year. (Your spouse is considered to have lived in your home even if he or she is temporarily absent but expected to live there at some point in the future.)
• You paid more than half the costs of keeping up your home for the year.
• Your home was your main residence for more than half the year, and you’re able to claim the exemption for either:
  • Your child
  • Your stepchild
  • Your foster child

You’ll still meet this test if you can’t claim the exemption only because the noncustodial parent can claim the child under the rules for divorced or separated parents.

So in my opinion and avove discussion, filing status of Polly should be Head of Household.