Individual Taxation - Exemptions

Question 1

What is the difference between a tax exemption and a tax exclusion

Answer 1

A tax exemption refers to a monetary exemption which reduces the amount of taxable gross income. Tax exempt status can provide complete relief from taxes, reduced rates, or tax on only a portion of items.

A tax exclusion is where certain income items are not included on the tax return in determining gross income, for example Child Support is a tax exclusion

Question 2

T/F

In determining the total support of a dependent, you would include/consider the fair rental value of a dependent’s lodging

Answer 2

TRUE

Support includes food, clothing, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent

Question 3

T/F

In determining the total support of a dependent, you would include/consider medical insurance premiums paid on behalf of the dependent

Answer 3

TRUE

Support includes food, clothing, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent

Question 4

T/F

In determining the total support of a dependent, you would include/consider birthday presents given to the dependent

Answer 4

TRUE

Support includes food, clothing, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent

Question 5

T/F

In determining the total support of a dependent, you would include/consider nontaxable scholarships received by the dependent

Answer 5

FALSE

Excluded from support is life insurance premiums, funeral expenses, nontaxable scholarships, and income and social security taxes paid from a dependent’s own income

Question 6

T/F

In determining the total support of a dependent, you would include/consider medical insurance premiums and life insurance premiums paid on behalf of the dependent

Answer 6

FALSE

Life insurance premiums are excluded from the definition of support. Medical insurance premiums, however, and included in the definition of support.

Question 7

T/F

One of the requirements to claiming an exemption for a dependent is that you provide over half of their support

Answer 7

TRUE

Question 8

One of the requirements to claiming an exemption for a dependent is that the dependent’s gross income is less than ______

Answer 8

$3950

Question 9

T/F

When calculating a dependent’s gross income to determine if they are eligible as an exemption (gross income under $3950) you include any social security benefits

Answer 9

FALSE

Social Security Benefits are excluded from gross income

Question 10

T/F

One of the requirements to claiming an exemption for a dependent is that they live with you

Answer 10

FALSE

They do not have to live with you if they are related to you

Question 11

T/F

You may claim an exemption for an individual who otherwise qualifies as a dependent except that they file a joint return with their spouse and the joint return has a tax liability

Answer 11

FALSE

This will prevent you from claiming an exemption for that individual

Question 12

T/F

A qualifying child is one who does not provide more than half of their own support and is a full-time student under age 24. A guardian can elect an exemption for this qualifying child.

Answer 12

TRUE

Question 13

T/F

A child who is at least 19, not a full-time student, and has a gross income of more than $3950 will not qualify for an exemption

Answer 13

TRUE

Question 14

T/F

When calculating a dependent’s gross income to determine if they are eligible as an exemption (gross income under $3950) you include any dividend income

Answer 14

TRUE

Question 15

T/F

Exemptions are allowed for dependents even if they are not a US Citizen or a resident of the US, Canada, or Mexico

Answer 15

FALSE

Question 16

T/F

There is an additional exemption for being 65 or older

Answer 16

FALSE

Question 17

T/F

A dependent who is blind will be eligible for 2 exemptions rather than just 1

Answer 17

FALSE

A blind dependent is still eligible for only 1 exemption

Question 18

T/F

The word’s “dependent” and “exemption” are almost interchangeable in that anyone who is eligible for an exemption is also going to be considered a dependent

Answer 18

FALSE

A taxpayer’s spouse is never considered a dependent but is eligible for an exemption

Question 19

T/F

A cousin who qualifies as a dependent in all respects except that they do not live with the taxpayer can still be classified as a dependent

Answer 19

FALSE

A cousin is not of a specified relationship and therefore even if a taxpayer supports the cousin and the cousin meets all other requirements, if the cousin does not live with the taxpayer the taxpayer may not claim the cousin as a dependent

Question 20

T/F

An aunt/uncle who qualifies as a dependent in all respects except that they do not live with the taxpayer can still be classified as a dependent

Answer 20

True

Unlike a cousin, an aunt/uncle is of a specified relationship and therefore if a taxpayer supports the aunt/uncle and the aunt/uncle meets all other requirements, even if the aunt/uncle does not live with the taxpayer the taxpayer may claim the aunt/uncle as a dependent

Question 21

A multiple support agreement can be used if no single taxpayer furnishes more than ____ of a dependent’s support and if two or more persons, each of whom would be able to take the exemption but for the support test, together provide more than _____ of the dependent’s support

Answer 21

50%

50%

Question 22

If a multiple support agreement is used, the taxpayer who provides more than ____ of the dependent’s support can claim the dependent if the other persons who furnish more than ____ agree not to claim the dependent as an exemption

Answer 22

10%

10%