REG CPA Practice Questions Explained: Identifying Qualified Dependents

Identifying Qualified Dependents

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In this video, we walk through 5 REG practice questions to help in identifying qualified dependents for tax purposes. These questions are from REG content area 4 on the AICPA CPA exam blueprints: Federal Taxation of Individuals.

The best way to use this video is to pause each time we get to a new question in the video, and then make your own attempt at the question before watching us go through it.

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Identifying Qualified Dependents

When it comes to U.S. federal taxes, there are comprehensive rules regarding who can be claimed as a dependent, which can lead to valuable tax benefits and is important for certain tax filer statuses.

Overall Requirements for Dependents:

To claim someone as a dependent, there are overarching requirements that must be met:

  1. Dependent Taxpayer Test: If you could be claimed as a dependent by another person, you can’t claim anyone else as a dependent.
  2. Joint Return Test: A person can’t be claimed as a dependent if they are married and file a joint return, except if that joint return is only to claim a refund.
  3. Citizen or Resident Test: The potential dependent must be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico.
  4. The person must then also qualify as a “Qualifying Child” or a “Qualifying Relative”.

Qualifying Child:

The IRS defines a qualifying child dependent as someone who meets the following criteria:

  1. Relationship: The child must be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepsibling, or a descendant of any of these.
  2. Age: They must be under the age of 19 at the end of the year, or under 24 if a full-time student for at least five months of the year. There is no age limit if the child is permanently and totally disabled.
  3. Residency: They must have lived with you for more than half the year, with certain exceptions for temporary absences, such as for school, vacation, or military service.
  4. Support: The child must not have provided more than half of their own support for the year.
  5. Joint Return: The child can’t be filing a joint return for the tax year unless it’s solely to claim a refund.

Example: Jane’s 20-year-old college son, who lives with her during summer and winter breaks and has a part-time job earning $3,500, would be a qualifying child.

Qualifying Relative:

A qualifying relative is a broader category and doesn’t have to be a child or even related in the traditional sense. They must meet the following criteria:

  1. Not a Qualifying Child: They can’t be the taxpayer’s qualifying child or the qualifying child of any other taxpayer.
  2. Member of Household or Relationship: The person must live in the taxpayer’s home all year or be related to the taxpayer in certain ways specified by the IRS.
  3. Gross Income: The person’s gross income for the year must be less than the year’s exemption amount.
  4. Support: You must provide more than half of the person’s total support for the year.

Example: Mark’s 30-year-old cousin, who has been out of work and lived in Mark’s house all year with no income, would qualify as a dependent under the qualifying relative rules.

These dependents provide taxpayers the possibility of claiming exemptions, which reduce taxable income. Additionally, taxpayers may be eligible for tax credits like the Child Tax Credit, Earned Income Credit, and others depending on the specifics of their situation.

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