Question

Walter and Nancy provide 60% of the support of their daughter (age 18) and son-in-law (age 22). The son-in-law (John) is a full-time student at a local university, while the daughter (Irene) holds various part-time jobs from which she earns $11,000. Walter and Nancy engage you to prepare their tax return for 2017. During a meeting with them in late March 2018, you learn that John and Irene have filed a joint return. What tax advice would you give based on the following assumptions:

a. All parties live in Louisiana (a community property state).

Who can Walter and Nancy claim as dependents?

What significance does filing a joint return have on exemptions?

The joint return test ________ to the qualifying child and qualifying relative categories of ___________ exemptions.

Indicate whether the following options could rectify the situation. Select "Yes" or "No" whichever is applicable.

1. If they could document the reason for filing a joint return was to claim a refund for tax withheld, no tax liability exists for either spouse on separate returns and neither spouse is required to file a return.

2. If John or Irene amend their return and file separately before April 16, 2018.

3. There is nothing that can be done, since the return has already been filed.

If John and Irene had not filed a joint return, who could Walter and Nancy claim as a dependent?

b. All parties live in New Jersey (a common law state).

The joint return problem ______________ be resolved

If John and Irene had not filed a joint return, who could Walter and Nancy claim as a dependent?

Answer 1

Answer:a Regardless of where the parties reside, it is essential that the damage of the joint return be undone. The joint return test applies to both the qualifying child and qualifying relative categories of dependency exemptions. The situation can be rectified by filing separate returns on or before April 15, 2014. In Louisiana, one-half of the daughter’s income, or $5,500 (50% × $11,000), is assigned to John. Being a qualifying child, the daughter can be claimed as a dependent. John, however, is subject to the gross income test contained in the qualifying relative category. Since $5,500 exceeds $3,500, John cannot be claimed as a dependent.

Answer:b As noted in part a., the joint return problem needs to be resolved. In New Jersey, none of the daughter’s income is earned by John. Consequently, John now meets the gross income test of a qualifying relative. The daughter also can be claimed as a dependent since there is no gross income test applicable to the qualifying child category.