Margo is a widow whose husband died several years ago. She has two children: Jul
ID: 2738480 • Letter: M
Question
Margo is a widow whose husband died several years ago. She has two children: Julie, age 20, and
Cliff, age 15. Julie is a full-time student at university, while Cliff attends the local high school. Julie,
who had income of $8,000 from a part-time job, has the option of claiming a personal exemption on
her personal return, or allowing Margo to claim her as a dependent (Margo provided over half of
Julie's support for the year). Assume that Margo's only income is from her $125,000 salary, and that
she does not itemize deductions. Margo can file as head-of-household whether or not she claims Julie
as a dependent because of Cliff. How much income tax will Margo save if she claims Julie as a
dependent?
Explanation / Answer
A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption, which means if Julie claims herself as a dependent on Margo, she cannot claim herself as a dependent on her own return. Cliff and Julie both can be claimed as dependent on Margo. Margo can deduct taxable income by $4000 for each child as per 2015 law.