Walter and Nancy provide 60% of the support of their daughter Irene (age 18) and
ID: 2459987 • Letter: W
Question
Walter and Nancy provide 60% of the support of their daughter Irene (age 18) and son-in-law John (age 22). John is a full-time student at a local university, while Irene holds various part-time jobs from which she earns $11,000. Walter and Nancy engage you to prepare their tax return for 2013. During a meeting with them in late March 2014, 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). b. All parties live in New Jersey (a common law state).
Explanation / Answer
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.
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