One of the key criteria set forth by the IRS that a person must satisfy in order to be claimed as someone else's dependent. The citizenship test dictates that the prospective dependent be a citizen of the U.S., a resident Mexico or Canada, or an adopted alien child that has lived with the taxpayer for the entire year. If none of these criteria are met, then the child or person cannot be claimed as a dependent under any circumstances. The citizenship test is one of several tests that must be met in order for someone to be claimed as a dependent. The others include the relationship test, residency test and others. This test is not to be confused with the test that is administered to immigrants seeking citizenship in this country.
A credit given to taxpayers for each dependent child that is under the age of 17 at the end of the tax year. The Child Tax credit is a nonrefundable credit that reduces the taxpayer's liability on a dollar-for-dollar basis. The Child Tax credit is intended to provide an extra measure of tax relief for taxpayers with qualifying dependents. Watch: Tax Deduction Vs. Tax Credit Because the Child Tax credit is nonrefundable, it can only reduce the taxpayer's liability to zero. It should not be confused with dependency exemptions, which may be awarded for dependents that do not qualify for this credit. However, it can also be supplemented by the Additional Child Tax credit.
A section of the Internal Revenue Code that expands the types of transactions that are considered to be sales and are subject to capital gains tax. According to this rule, transactions that effectively take an offsetting position to an already owned position are considered to be constructive sales. The purpose of the constructive sale rule is to prevent investors from locking in investment gains without paying capital gains and to limit their ability to transfer gains from one tax period to another.This rule is Section 1259 of the Code. It is also referred to as "Constructive Sales Treatment for Appreciated Financial Positions". This rule was introduced by Congress in 1997. Transactions considered to be constructive sales include making short sales against similar or identical positions (known as "short sales against the box"), and entering into futures or forward contracts that call for the delivery of an already-held asset. There are some exceptions to the rule that remove the need to pay capital gains. For example, if the transaction is closed prior to 30 days after the end of the year in which the gain was achieved, or if the original position is held for 60 days after the offsetting position is closed, then no capital gains tax will be incurred.
A tax term mandating that a taxpayer is liable for income, which has not been physically received, but has been credited to the taxpayer's account or otherwise becomes available for him or her to draw upon in the future. Constructive receipt of income prevents taxpayers from deferring tax on income or compensation they have not yet utilized or spent. The doctrine of constructive receipt applies to employees that use the cash-basis method of accounting. This means that an employee who received a paycheck at the end of one year must report it as income that year, even if he or she didn't deposit the check until after the new year. This doctrine also stipulates that receipt of funds by an agent is considered to be received by the principal at that time as well.
The seizure of a property by a public authority for a public purpose. Condemnation often occurs when a taxpayer owns property or real estate in a place that has been designated for public use or construction. Condemnation is exercised by public authorities through the power of eminent domain. Condemned property must be appraised by the condemning governmental authority. The owner of the property is then offered the appraised value for the property seized. This offer is called a pro tanto award. The owner can decline the award and hire a lawyer if the owner feels the pro tanto award is insufficient. Condemnations can be used to make way for private projects as well as public ones, if the public authority believes the project will serve the public good.
Expenses that are incurred as a result of the taxpayer's regular means of getting back and forth to his or her place of employment. Commuting expenses can include car expenses and public transportation costs. Commuting expenses are never deductible, unless the taxpayer has more than one job. In this case, the cost of commuting from one place of employment to the other on a regular basis would be tax deductible.
Income earned by taxpayers who live in community property states. Community income is considered to belong equally to both spouses, just as with all other property that is owned or acquired by either spouse during the marriage. Income that is earned by either spouse before or after a marriage is not considered to be community income. Community income is earned in Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.
An area designated as a war zone during a specified period. Members of the military do not need to claim taxable income they earn while working in a combat zone. Troops on active duty in a combat zone are also granted additional time to file taxes. Should they be injured carrying out their duties, any compensation they receive is protected under the combat zone tax break.
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