CPA Regulation (REG) : Dependents

Study concepts, example questions & explanations for CPA Regulation (REG)

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Example Questions

Example Question #1 : Dependents

A 22-year-old full-time student earned $11,000 in salary and received $9,000 in interest from corporate bonds. The bonds were a gift from the student's grandparents. The student's parents pay more than half of the student's support, including $25,000 in tuition. Which of the following statements is correct regarding the student's current-year income tax?

Possible Answers:

A portion of the student's interest income and no other income will be subject to the "kiddie tax."

Neither the student's salary nor the interest income will be subject to the "kiddie tax."

Both the student's salary and a portion of the interest income will be subject to the "kiddie tax."

The student's salary income and no other income will be subject to the "kiddie tax."

Correct answer:

A portion of the student's interest income and no other income will be subject to the "kiddie tax."

Explanation:

As a full-time student with more than $2,200 in unearned income (interest income), and who does not earn more than half their own support is subject to the kiddie tax. This tax applies only to unearned income, not earned, meaning the salary is subject only to regular income taxes.

Example Question #1 : Dependents

June earned $400,000 in his business during the current year, and her husband Steve received investment income of $20,000. June provides more than half of the support for her 50-year-old widowed brother, who lives with June and earned $44,000 in salary. June also provides full support for her children, an 18-year-old daughter and a 20-year-old son, who is a full-time college student. The family employs a live-in housekeeper and a live-in butler to assist them with their residence. Both the housekeeper and butler provided all of their own support. How many people qualify as either a qualifying child or qualifying relative for June?

Possible Answers:

Five

Four

Zero

Two

Correct answer:

Two

Explanation:

Only the children meet the qualifications of dependents (each as a qualifying child). Since the children receive full support from their parents and are either a) under 19 or b) under 24 and full-time college students, they meet the basic criteria as qualifying children. The widowed brother does not qualify because his gross income exceeds $4,300.

Example Question #3 : Dependents

Jake and Andrea contribute to more than half of the support of their three children, Kenny, Bryan, and Jennifer. Kenny, age 20, worked full time at the local bakery and earned $20,000. Bryan, 18, is a part-time college student who earned $6,000 working as a resident assistant in the student dormitory where he lived half the year. Jennifer, age 25, is an aspiring actress who lives at home with Jake and Andrea. Jennifer earned $2,500 for three commercials she starred in. Who qualifies as a dependent for Jake and Andrea under either the rules of qualifying child or qualifying relative?

Possible Answers:

Kenny, Bryan, and Jennifer

Kenny

Kenny and Bryan

Bryan and Jennifer

Correct answer:

Bryan and Jennifer

Explanation:

Only Bryan and Jennifer qualify. Bryan is considered a qualifying child since he is under age 19, lives with his parents half the year, and receives more than half his support from his parents. Jennifer is considered a qualifying relative since she is a child of the parents, receives more than half her support from them, and makes less than $4,300 in gross income. Kenny is over 19, not a college student, and makes over $4,300 in gross income, which disqualifies him as a dependent.

Example Question #4 : Dependents

The Kent family has a 21 year old son Andrew, who is a full-time student at a university. Andrew received $10,000 in scholarships this year for academic achievement. He also works part time at the bookstore and earned $5,400 this year. The Kents paid $7,000 to support Andrew this year. Andrew was home for two months in the summer and at school for the rest of the year. Andrew used the scholarship, the wages from his part time job, and the money from his parents as his only source of support this year. Which of the following status’ does Andrew meet?

Possible Answers:

Qualifying person

Qualifying relative

Exemption

Qualifying child

Correct answer:

Qualifying child

Explanation:

Andrew meets the definition of qualifying child for the Kent family. He meets the close relative test because he is their son. He is under the age of 24 and is a full-time student so he meets the age limit. He meets the residency requirements because his principal place of residence is his parents home since he is only away as a student. He also does not provide more than half of his own support.

Example Question #5 : Dependents

Of the following, which is or are among the requirements to enable taxpayers to be classified as a “qualifying widower”? A) The dependent has lived with the taxpayer for six months B) The taxpayer has maintained the cost of the principal residence for six months

Possible Answers:

Both

A

Neither

B

Correct answer:

Neither

Explanation:

These requirements do not enable a taxpayer to be classified as a qualifying widower.

Example Question #6 : Dependents

Jared has two children, an 18-year-old son and a 20-year-old daughter who is a full-time student. Both children have not made more than $1,000 each from their part-time jobs. Which of the following children would qualify as a qualifying relative or child?

Possible Answers:

Neither

The son

Both

The daughter

Correct answer:

Both

Explanation:

Both of these children qualify as qualifying children. They are close relatives, they are within the age limit, receive their support from their father, and do not make enough income themselves.

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