Question

Polly maintain a household in which she lives with her unemployed husband (Nick), stepdaughter (Paige) and her cousin (Maude).Maude was fatalky injured in an automobile accident in May.Before Maude died she had received $5000 Social Security, $ 3500 pension, $ 500 in dog-walking fees and $400 in municipal bond interest.Paige is an accomplished gymnast.She graduated high school last year.Paige has a part time job but spends most of her time training.She currently attends jonior 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 part 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 $11800.The rings were sold for their approximate value of $ 9000.Polly is a school vice principal.Her salary is 95000.The school system also pays for Polly's health insurance ($12000 premium) and her pension plan ($5000).(Health insurance and qualified retirement plans 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 ta 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

For all the answers it is assumed that the year is 2017

1) Maude can be claimed as dependent because she has not earned more than $ 4050 during the year.

Social security benefits = Non taxable

Pension = Non taxable (assuming it to be disability pension)

Dog walking fees = $ 500

Municipal interest = Non taxable

So, Maudy's Gross income is $ 4000 (less than $ 4050). Als, all other conditions are met. so, Maudy can be claimed as dependent.

Here is a checklist for determining whether your mom relative qualifies as a dependent.

• Do they live with you? Your relative must live at your residence all year or be on the list of “relatives who do not live with you” in Publication 501. About 30 types of relatives are on this list.
• Do they make less than $4,050 in 2017? Your relative cannot have a gross income of more than $4,050 in 2017 and be claimed by you as a dependent.
• Do you financially support them? You must provide more than half of your relative’s total support each year.
• Are you the only person claiming them? This means you can’t claim the same person twice, once as a qualifying relative and again as a qualifying child. It also means you can’t claim a relative—say a cousin—if someone else, such as his parents, also claim him.

2) Yes, from the facts given we cannot determine whether Paige can be claimed as dependent or not. We need to know two things:-

a) Age of Paige and

b) Whether the scholarship is taxable or not.

3) Poly's income tax filing status is HEAD OF HOUSEHOLD. She can claim the said status because the following conditions are met:-

• You file a separate married return.
• Your spouse has zero gross income for the year.
• Your spouse therefore doesn't file a tax return of her own.
• Your spouse is not a dependent of another person, regardless of whether the other person actually claims him/her.

4) Polly's deduction from AGI is ZERO (0).

Poly cannot deduct anything to arrive at her AGI because health insurance and her pension plans are non taxable benefits.

5) Polly's income tax is :-

Gross income = Salary + Capital Gain + Dog walking fees

= 95000 + (11800-9000) + 400

= $ 98,200

Now, she can claim 2 personal exepmtion (For herself and Cousin maude) = 4,050 * 2 = 8,100

And she has gone for standard deduction = Standard deduction for Head of household = $ 9,350 (Year 2017)

So, her taxable income is:-

= Gross income - personal exepmtion - standard deduction

= 98,200 - 8,100 - 9,350

= $ 80,750

So, her tax rate is 25% ( $50,800 to $131,200)

= 6,952.50 + 25% (80,750 - 50,800)

= 6,952.50 + 7,487.50

= $ 14,440.