Tax Accounting, Research Paper Example

In today’s economy, being financially fit is more important than ever. However, this requires proper organization of financial assets, and it also requires being a knowledgeable taxpayer to help minimize the amount of taxes paid each year. An article on IRS.gov (2011) reports, that each exemption allows taxpayers to deduct $3,650 on their 2010 tax returns.

Many people are unaware of how they can save money, or increase their tax return amounts, by taking advantage of federal and state deduction and exemption credits. This may be due, in part, to being unsure about extenuating circumstances when tax time comes around. This causes many people to ask questions about these uncertainties. One of the most common tax questions asked deals with claiming dependents and whether or not they qualify.

The following scenario is an example of an extenuating circumstance surrounding a tax exemption issue.

Joe and Jane are expecting a baby in January, but Jane was rushed to the hospital in December. She delivered the baby but it dies the first night.  Are Joe and Jane entitled to a dependency exemption for the baby?

The issue here is the fact that Joe and Jane lost their baby to death after only one night. The problem that needs to be solved is whether or not they can claim their child on their taxes and take an exemption.

Based on my research, the answer is yes. Joe and Jane can definitely claim their deceased child on their tax return and take the dependency exemption. The scenario states that the child was born alive, so it was not stillborn.

IRS Publication 501 (12-2011): Exemptions, Standard Deduction, and Filing Information states a child can be claimed as an exemption if the child was born alive, but died, in the tax year. This is true even if the baby was only alive for a minute. As long as it was not stillborn, the parents can claim the child and take the exemption. The publication goes on to state that laws governed by city and state must consider the child’s birth a live birth. The child must also be considered as a resident during the entire tax year.

As a condition, the child must pass the qualifying child test and all other qualifying tests of a dependent. According to IRS.gov (2011), a child is a qualifying child if the child is a biological, step, adopted or foster child that lived with the taxpayer(s) for more than half of the tax year, or was born alive and died in the same tax year. A qualifying child is under the age of 19 or under age 24, if a full-time student, and was dependent on the taxpayer(s) for more than half of his or her support during the tax year.

Additionally, the parents in the scenario above must also present proof of the live birth with the baby’s birth certificate or other official documentation. The baby’s death certificate should also be presented. It is also a good idea to keep tax records for at least 7 years.

What do I think about this? I think this is a fair and equitable IRS regulation that allows grieving citizens the opportunity to get some extra relief on their tax returns. No doubt, these parents invested a great deal of money, as well as time from being off from work, to prepare for the birth of their child. I feel like this is justification for allowing them to take the tax credit.

I am sure that many families have found it a comfort to know that they do not have to worry about this if this type of tragedy happens.

References

IRS.gov (2005). A “Qualifying Child”. Retrieved from http://www.irs.gov/uac/A-%E2%80%9CQualifying-Child%E2%80%9D

IRS.gov (2011). Six Important Facts about Dependents and Exemptions. Retrieved from http://www.irs.gov/uac/Six-Important-Facts-about-Dependents-and-Exemptions-1

Publication 501 (12-2011): Exemptions, Standard Deduction, and Filing Information, Bloomberg BNA. Retrieved from http://0-taxandaccounting.bna.com.maurice.bgsu.edu/btac/T13113/split_display.adp?fedfid=5191061&vname=tmirspubs&fcn=12&wsn=501698000&fn=24104926&split=0&searchid=18541035&doctypeid=14&type=viewsort#24104926