FIVE-PART DEPENDENCY

TEST

A five-part

test is used to determine whether an individual may be claimed as your

dependent.

(1) Dependents

must receive over half of their support from you. (2) If the dependent

is not a relative, he or she must have lived with you and been a member

of your household for the entire year. (3) A dependent must be a U.S.

citizen, or a resident of the U.S., Canada, or Mexico. (4) He or she may

not file a joint return with anyone, except in certain instances where

a refund is being claimed. (5) A prospective dependent's gross income

must be less than $2,800 for 2000. (The gross income requirement does

not apply to a child under the age of 19 or to a full-time student under

age 24.)

Typically,

deciding whether a member of your household is a dependent is relatively

simple. In the most common cases, the person is a minor child living with

and supported by one or both parents. However, in some instances, where

an extended family lives under one roof, there may be questions as to

whether certain individuals qualify for dependency exemptions. Additionally,

you may be able to claim a person you support as a dependent, even if

they are not living with you. To help you address these issues, here are

answers to some frequently asked questions regarding dependency exemptions.

Q. My two sisters

and I support our mother who lives with me. Together, in 2000, we paid

more than half of her total support but, because we split the cost three

ways, individually, none of us pays more

than 50 percent

of her care. Can we qualify for the dependency exemption?

A . Yes.

In such situations, as long as you each paid over 10% of total support

for the dependent and together overall provide 50% of her total support,

you may agree among yourselves to have one of you take the exemption.

You can also take turns claiming the exemption. Form 2120 must be completed.

Q. In determining

whether I furnished over half the support for a dependent, what exactly

counts as support?

A. Among the

items considered as support of a dependent are: food, shelter, clothing,

medical and dental care, health insurance premiums, education, transportation,

recreation, and similar necessities. To compute the value of the shelter

you provide, use its "fair rental value" that is, the amount

you could reasonably expect to receive from a stranger for the same lodging.

You may also factor in a reasonable allowance for the use of furnishings,

telephone, electricity, etc.

Q. Are there

limitations on who can claim dependency exemptions?

A. Yes, the

dependency exemption is subject to adjusted gross income (AGI)thresholds.

For the 2000 tax year, it begins to be phased out for single filers with

AGIs of $128,950, joint filers with AGIs of $193,400, married filing separately

with AGIs of $96,700 and heads of household with AGIs of $161,150.

Q. Our income

has reached the point where we no longer get the full benefit of dependency

exemptions. Can our son who is away at college claim a personal exemption

on his own return?

A. There is

nothing optional about the dependent exemption rule. If you are eligible

to claim an exemption for your child who is away at college, the child

cannot claim his or her own exemption.

This is true

even if you are going to lose some or all of your personal exemptions

because your income is too high.

Q. The total

cost of my parents' support is $28,000, of which they pay $20,000 and

I contribute the remaining $8,000, which is less than half. Is there another

way of structuring my payments that would allow me to claim my parents

as dependents?

A. Instead

of contributing to the combined support of your parents, offer all of

your support to just one parent and have them file married filing separately.

Your $8,000

would be more than half of one parent's total support ($14,000). Be sure

you can back up your plan with checks made payable to just the one parent.

The GSCPA is

the premier professional organization for CPAs in the state of Georgia.

With over

10,000 members

throughout the state, the purpose of the GSCPA is to promote the study

of accountancy and applicable laws, provide continuing professional

education, maintain high ethical and work standards, and provide information

about accounting issues to the membership and the public. For more information,

access our web site at www.gscpa.org.

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