Tax Law

US Tax Law

On October four, 2004, President Bush signed into law the Functioning Households Tax Relief Act of 2004 (P.L. 108-311). The Act, according to the Joint Committee on Taxation, will reduce taxes by some $146 billion more than the subsequent 10 years.

There are several provisions in this Act which will help operating households. This short article will concentrate on only one particular provision, the “uniform definition of a kid.”

The objective of the provision was to simplify the tax code by adopting a uniform definition of a kid for the dependency exemption, the kid credit, the earned revenue credit (EIC), the dependent care credit, and head-of-household filing status.

In common, beneath preceding law a dependency exemption was permitted if a taxpayer could show that they met 5 simple tests. Beneath the new definition, a dependency exemption is permitted for an person who would meet the specifications of, and therefore qualify as the taxpayer’s “qualifying kid” or “qualifying relative.”

There are some situations in which an otherwise qualifying person (qualifying kid or qualifying relative) will not be regarded a dependent in the following conditions. The person is a dependent of an additional taxpayer consequently, that person can have no dependents. The person files a joint return, and the person is not a citizen or resident of the United States or a nation contiguous to the United States.

As a common rule, there are 4 tests which need to be met in order to be regarded a qualifying kid

1. Connection

two. Member of household

three. Age

four. Self-assistance

The connection test is met if the person is a kid of the taxpayer or a descendant of a kid or a brother, sister, stepbrother or stepsister of the taxpayer or a descendant of any of these folks.

The term “kid” consists of son, daughter, stepson or stepdaughter of the taxpayer, or an “eligible foster” kid of the taxpayer.

Beneath this provision an adopted kid or a kid lawfully placed with the taxpayer for adoption is treated as a kid by blood and an “eligible foster” kid is an person placed with the taxpayer by an authorized placement agency or court.

The member of household test calls for that the person need to have had the similar principal spot of abode as the taxpayer for extra than half the tax year.

Mainly because the taxpayer no longer has to deliver more than half of the assistance of an person meeting the specifications to be a qualifying kid, extra than one particular taxpayer could qualify to claim the person as a dependent.

If extra than one particular taxpayer is entitled to and does claim the person as a dependent on the tax return, there are provisions to decide which taxpayer will be permitted the dependency exemption. If one particular of the taxpayers claiming the dependency is the individual’s parent, then the parent will acquire the dependency exemption.

If each parents are claiming the person on separate returns, then the one particular with whom the person resided the longest for the duration of the year will be entitled to the exemption.

If the person resided for an equal quantity of time with each and every, then the parent with the highest adjusted gross revenue will acquire the exemption.

If neither of the taxpayers are the individual’s parents, then the one particular with the highest adjusted gross revenue will be permitted the dependency. This is a partial overview of the new Qualifying Kid guidelines. I hope this short article has helped to clarify this rule.

Show More
Close