Ch 4 - tax accounting

general rules for qualifying child

• relationship test

• residence test

• age test

• joint return test

• citizenship test

• non-self supporting test

relationship test (QC)

the dependent must be a natural child, stepchild, adopted child, foster child, sibling, step-sibling, or a descendent of any of these

residence test (QC)

the qualifying child must have the same household as the taxpayer for more than one half of the tax year

age test (QC)

must be under the age of 19 at the end of the tax year or under the age of 24 if a full time student for at least 5 months of the tax year (does not apply if the indv is permanently and totally disabled)

joint return test (QC)

a qualifying child cannot file married-jointly on her own tax return

citizenship test (QC)

a qualifying child must be a citizen or resident of the US, or a resident of Canada or Mexico

non-self-supporting test (QC)

a qualifying child cannot have provided more than 50% of his or her own support

formula= support provided by QC/total support provided by and for QC

Tie Breaker Rules

• if one indv is actually the parent and the other is not, the parent claims the child

• if a parent is eligible to claim the QC, the parent can allow another eligible indv to claim the child if the eligible indv has a higher AGI

• if both indv are parents and they do not file a joint return, the parent with whom the child resides with the longest during the tax year claims the child

• if none of the qualifying indv’s is a parent, the taxpayer with the highest AGI claims the child

Unmarried parents rules

• the parent with custody of over half the tax year can claim the child as a dependent

• if the child resides with each parent for the same number of nights, the parent with the highest AGI will be the custodial parent (custodial parent can waive their dependency claim)

multiple support agreement

arrangement by two or more taxpayers who collectively provide more than 50% of the financial support for a person (must meet all tests but the support test)

• all taxpayers claiming the exemption must provide more than 10% but less than half of the support of the dependent

Qualifying Relative

can be claimed as a dependent if they meet the 5 tests

• relationship test

• gross income test

• joint return test ( same as QC)

• citizenship/residency test (same as QC)

• support test

A qualifying child can also be a qualifying relative

relationship test (QR)

all common relatives except for cousins (step’s and in-laws qualify)

• it includes any person who lives in the taxpayers home (for entire tax year), includes relatives indefinitely confined in a nursing home

gross income test (QR)

dependents gross income must be less than the exemption amount ($5,300 for 2026)

there are two key rules for defining gross income for purposes of this test:

• taxable sources only: exclude tax-exempt income (municipal interest or non-taxable social security)

• before expenses: use total revenue before any expenses are deducted

support test (QR)

the taxpayer must provide more than 50% of the dependents total support

married taxpayers

can chose between married filing jointly (MFJ) or married filing separately (MFS)

• if MFJ is chosen and one spouse itemizes their deductions, then the other spouse must itemize

• if MFS, neither spouse can claim the earned income credit, the child care credit, or an education credit

innocent spouse

a spouse who had no reason to know of an omission from income by the other spouse on the tax return

5 filing statuses

MFJ, MFS, single, HOH, and qualifying widower (surviving spouse)

Head of Household Status

• the taxpayer must provide more than half of the cost of maintaining the household for a qualifying child or relative

• this home must be the QC’s or QR’s principal residence for more than half of the tax year

Exceptions:

-unmarried child or grandchild who lives in your home does not need to be a dependent

-a parent who is your dependent but does not need to live in your home

abandoned spouse

a married taxpayer who can file as though they are unmarried, if HOH filing statuses are met

Qualifying widower (surviving spouse)

may use the MFJ rates for two years after the taxpayer’s spouse has died (only if used MFJ the year of death)

to qualify:

• taxpayer must provide more than half of the cost of maintaining the household

• for a dependent child, their principal place of abode must be with the taxpayer

• can ignore the joint return test, gross income test for QR’s, and the rule that dependent cannot also have dependents

• for a surviving spouse, the law limits child to a biological child, stepchild, or adopted child

the tax law defines maintaining a household as:

rent, mortgage interest (do not include principal payments on mortgage), utilities, repairs and maintenance, property insurance, food eaten in the home

standard deduction for a dependent

the standard deduction for a taxpayer claimed as a dependent by another to the greater of $1,350 (2026) or earned income plus $450 (26)

• the standard deduction for a dependent cannot exceed the basic standard deduction for a taxpayer filing as single

kiddie tax

taxes a portion of the child’s unearned income at the parent’s tax rate

who is subject to the kiddie tax?

applies to a child who does not file a joint return and who is:

• under 18

or

• age 18 and not self-sufficient

or

• full-time student for 5-months between ages 18-23 and is not self-sufficient ( a child’s earned income is greater or equal to one half of the child’s total support)

who must file a tax return ?

individuals do not have to file a tax return unless their gross income exceeds their standard deduction amounts

• standard deduction amounts change each year and are dependent on filing status and age

• taxpayers can increase their standard deduction if they are 65 or over and/or if they are blind. The amount of increase is $2,050 (2026) for taxpayers who do not file MFJ and $1,650(2026) for those who do. IF both spouses meet requirements, then the taxpayers can increase standard deduction by $1,650 for each spouse