J.K. Lasser's 1001 Deductions and Tax Breaks 2022. Barbara Weltman

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Whether you are married or single has a significant impact on your taxes. In some cases, being married results in a “marriage bonus,” which means effectively averaging taxes when one spouse works and the other does not. In other cases, being married results in a “marriage penalty,” which means that two working spouses earning about the same likely will pay higher total tax than if they were single. For some tax rules, a married couple has the identical tax break as a single individual, such as the $3,000 capital loss deduction against ordinary income and the $10,000 limit on itemizing state and local taxes, which is a distinct disadvantage for those who are married. For some tax rules, a married couple has double the tax break for singles, such as the ordinary loss deduction for so‐called Section 1244 stock, so marital status makes no difference here.

      Technically, there are a number of filing statuses that determine eligibility for various tax breaks:

       Married filing jointly

       Married filing separately

       Head of household

       Unmarried (single)

       Qualifying widow(er) with a dependent child. This filing status is also referred to as a surviving spouse.

      You need to know which term applies to you. The terms are not further defined here and often cause confusion, so check IRS Publication 501 if you are unsure. Note that under federal tax law, the terms “husband,” “wife,” and “spouse” are gender neutral. The term “husband and wife” means two individuals lawfully married to each other. However, those in a civil union or domestic partnership are not married for federal income tax purposes.

Dependents

      No personal or dependency exemptions can be claimed in 2018 through 2025. So if you had 4 exemptions in 2017 and deducted $16,200 ($4,050 × 4) in that year, your deduction in 2021 is zero. The suspension of exemptions seriously reduces write‐offs for many taxpayers. Of course, because high‐income taxpayers were subject to a phaseout of exemptions, they are not greatly affected by the suspension in the deduction for exemptions.

However, the concept of dependents has not been eliminated and continues to apply for various purposes. For example, for purposes of a child tax credit that may be claimed for a qualifying child or a dependent who is not a qualifying child, the concept of dependents continues to apply. The definition of dependent varies for certain purposes and is explained in each relevant tax break in this book. For example, the amount of income for a qualifying relative taken into account in determining dependent status in 2021 is $4,300.

Qualifying Child

      The following is a brief explanation of a qualifying child and a qualifying relative (someone who is not a qualifying child):

      A qualifying child must meet all of the following conditions:

       Relationship test: The child must be your son or daughter (natural, adopted, step, and in some cases foster) or a descendant of your sibling (e.g., niece or nephew).

       Age test: The child must be younger than you and either younger than 19 years old, be a “student” younger than 24 years old as of the end of the calendar year, or any age but permanently and totally disabled.

       Residency test: The child must live with you in the United States for more than half the year (special rules for noncustodial parents are explained later).

       Joint return test: The child cannot file a joint return unless doing so to claim a tax refund.

       Support test: The child does not provide more than half of his or her own support.

      Multiple people claiming the child as a dependent. Where one parent has physical custody of the child, he or she can waive treating the child as a dependent to permit the noncustodial parent to do so. The waiver (annually or permanently) is made on Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. The form applies to some benefits (e.g., child tax credit) but not for other benefits (e.g., earned income tax credit, dependent care credit, head of household status).

      Where 2 people are eligible to treat the child as a dependent, a “tie breaker rule” comes into play. Generally, the person with greater physical custody (determined by counting the nights that the child spends with each person) is determinative. However, when there's an even split, other rules are used to decide which person can treat the child as a dependent.

Qualifying Relative

      This is a person who is not a qualifying child and who meets all of the following conditions:

       Relationship test. The person must be either related to you in a stated way (e.g., a child too old to be a qualifying child, grandchild, parent, certain in‐laws, aunt, uncle, niece, or nephew) or a member of your household.

       Support test. You must provide more than half of the person's support for the year.

       Gross income test. The person must have a gross income below a set amount ($4,300 in 2021).

Child Tax Credit

      The U.S. Department of Agriculture estimates that it costs a middle‐class family over $233,610 to raise a child born in 2015 to age 18 (there are no newer statistics), but if you factor in inflation, the cost becomes $261,473). In recognition of this cost, the tax law allows you to claim a tax credit.

       Benefit

      You may claim a tax credit of up to $3,600 for a qualifying child from birth to under age 6 and $3,000 for age 6 but under 18. You may claim a $500 credit for a qualifying dependent (a person who is not a qualifying child). If the credit for a qualifying child that you are entitled to claim is more than your tax liability, you may be entitled to a refund under certain conditions.

      The credit for a qualifying child is fully refundable if you (or your spouse if married filing jointly) meet certain conditions; the credit for a qualifying dependent is not refundable. From July 1, 2021, through December 31, 2021, the IRS paid one‐half of the credit on an advanced basis (ratably each month) to you if you were eligible for the credit, unless you opted to forego the advance payments. These payments are reported to you on IRS Letter 6419 (sent in January 2022). The balance of the credit is claimed on your 2021 income tax return.

      The advance payments were based on information the IRS had about you for 2020 (your income, dependents, filing status, residency). If there have been changes, you may have to repay any excess credit amounts you received (see Pitfalls).

       Conditions

      To claim the child tax credit, you must meet 2 conditions:

      1 You must have a qualifying child or a qualifying dependent with a valid Social Security number.

      2 Your income must be below a set amount. To have the credit treated as refundable, you must meet a residency test. This means you (or your spouse if married filing jointly) have a principal place of abode in the U.S. for more than half of 2021 or are a bona СКАЧАТЬ