Federal Taxation

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abandoned spouse

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The abandoned spouse provision enables a married taxpayer with a dependent child whose spouse did not live in the taxpayer’s home during the last six months of the tax year to file as a head of household rather than as married filing separately.

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child tax credit

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A tax credit based solely on the number of qualifying children under age 17. The maximum credit available is $1,000 per child through 2010. A qualifying child must be claimed as a dependent on a parent’s tax return in order to qualify for the credit. Taxpayers who qualify for the child tax credit may also qualify for a supplemental credit. The supplemental credit is treated as a component of the earned income credit and is therefore refundable. The credit is phased out for higher-income taxpayers. § 24

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collectibles

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A special type of capital asset, the gain from which is taxed at a maximum rate of 28 percent if the holding period is more than one year. Examples include art, rugs, antiques, gems, metals, stamps, some coins and bullion, and alcoholic beverages held for investment.

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dependency exemption

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The tax law provides an exemption for each individual taxpayer and an additional exemption for the taxpayer’s spouse if a joint return is filed. An individual may also claim a dependency exemption for each dependent, provided certain tests are met. The amount of the personal and dependency exemptions is $3,650 in 2009 ($3,500 in 2008). The exemption is subject to phaseout once adjusted gross income exceeds certain statutory threshold amounts. This phaseout provision is subject to partial phaseout beginning in 2006.

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E-file

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The electronic filing of a tax return. The filing is either direct or indirect. As to direct, the taxpayer goes online using a computer and tax return preparation software. Indirect filing occurs when a taxpayer utilizes an authorized IRS e-file provider. The provider often is the tax return preparer.

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head of household

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An unmarried individual who maintains a household for another and satisfies certain conditions set forth in § 2(b). This status enables the taxpayer to use a set of income tax rates that are lower than those applicable to other unmarried individuals but higher than those applicable to surviving spouses and married persons filing a joint return.

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itemized deductions

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Personal and employee expenditures allowed by the Code as deductions from adjusted gross income. Examples include certain medical expenses, interest on home mortgages, state income taxes, and charitable contributions. Itemized deductions are reported on Schedule A of Form 1040. Certain miscellaneous itemized deductions are reduced by 2 percent of the taxpayer’s adjusted gross income. In addition, a taxpayer whose adjusted gross income exceeds a certain level (indexed annually) must reduce the itemized deductions by 3 percent of the excess of adjusted gross income over that level. Medical, casualty and theft, and investment interest deductions are not subject to the 3 percent reduction. The 3 percent reduction may not reduce itemized deductions that are subject to the reduction to below 20 percent of their initial amount. Beginning in 2006, this reduction is subject to a partial phaseout.

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kiddie tax

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Passive income, such as interest and dividends, that is recognized by a child under age 19 (or under age 24 if a full-time student) is taxed to him or her at the rates that would have applied had the income been incurred by the child’s parents, generally to the extent that the income exceeds $1,900. The additional tax is assessed regardless of the source of the income or the income’s underlying property. If the child’s parents are divorced, the custodial parent’s rates are used. The parents’ rates reflect any applicable alternative minimum tax and the phaseouts of lower tax brackets and other deductions. § 1(g).

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multiple support agreement

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To qualify for a dependency exemption, the support test must be satisfied. This requires that over 50 percent of the support of the potential dependent be provided by the taxpayer. Where no one person provides more than 50 percent of the support, a multiple support agreement enables a taxpayer to still qualify for the dependency exemption. Any person who contributed more than 10 percent of the support is entitled to claim the exemption if each person in the group who contributed more than 10 percent files a written consent (Form 2120). Each person who is a party to the multiple support agreement must meet all the other requirements for claiming the dependency exemption. § 152(c).

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personal exemption

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The tax law provides an exemption for each individual taxpayer and an additional exemption for the taxpayer’s spouse if a joint return is filed. An individual may also claim a dependency exemption for each dependent, provided certain tests are met. The amount of the personal and dependency exemptions is $3,650 in 2009 ($3,500 in 2008). The exemption is subject to phaseout once adjusted gross income exceeds certain statutory threshold amounts. This phaseout provision is subject to partial phase-out beginning in 2006.

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qualifying child

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An individual who, as to the taxpayer, satisfies the relationship, abode, and age tests. To be claimed as a dependent, such individual must also meet the citizenship and joint return tests and not be self-supporting. §§ 152(a)(1) and (c).

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qualifying relative

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An individual who, as to the taxpayer, satisfies the relationship, gross income, support, citizenship, and joint return tests. Such an individual can be claimed as a dependent of the taxpayer

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standard deduction

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The individual taxpayer can either itemize deductions or take the standard deduction. The amount of the standard deduction depends on the taxpayer’s filing status (single, head of household, married filing jointly, surviving spouse, or married filing separately). For 2009, the amount of the standard deduction ranges from $5,700 (for married, filing separately) to $11,400 (for married, filing jointly). Additional standard deductions of either $1,100 (for married taxpayers) or $1,400 (for single taxpayers) are available if the taxpayer is either blind or age 65 or over. For 2008 and 2009, a real property tax standard deduction is available in the amount of $500 ($1,000 on a joint return). For 2009, there also is a limited auto sales taxes standard deduction. Limitations exist on the amount of the standard deduction of a taxpayer who is another taxpayer’s dependent. The standard deduction amounts are adjusted for inflation each yea

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surviving spouse

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When a husband or wife predeceases the other spouse, the survivor is known as a surviving spouse. Under certain conditions, a surviving spouse may be entitled to use the income tax rates in § 1(a) (those applicable to married persons filing a joint return) for the two years after the year of death of his or her spouse.

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tax table

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A tax table that is provided for taxpayers with less than $100,000 of taxable income. Separate columns are provided for single taxpayers, married taxpayers filing jointly, heads of households, and married taxpayers filing separately

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unearned income

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Income received but not yet earned. Normally, such income is taxed when received, even for accrual basis taxpayers.