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Income Tax- Who Must File in 2016 Over Age 65- Part 3

As discussed in the previous posts an individual must file an income tax return for tax year 2015 depending upon filing status, gross income, and whether the individual could be claimed as a dependent on another’s tax return. Additional factors in determining the necessity to file include the individual’s unearned income, earned income, and gross income. The following are examples illustrating situations where an individual determined the necessity to file or not. Again, please note that whether an must file an income tax return for tax year 2015 is different from whether an individual should file an income tax return.

Example: Sol of Smithtown, NY is age 80 and his only source of income is social security. He lives with his daughter, Sandy, in her home, and she provides more than 50% of his support throughout the year, hence, she can claim him as a dependent. His total social security for tax year 2015 is $18,000.00. Must Sol file an income tax return?

Answer: NO. Although his income is over the $4,150.00 unearned income limit, only TAXABLE social security income is included in unearned income.

Example 2: Harry of Hauppauge, NY is age 75 and he lives with his son, Harold, in Harold’s home. Harold provides more than 50% of Harry’s support, so Harold can claim Harry as a dependent on his tax return. Harry has the following income during tax year 2015:

  • Social security $3,100.00
  • Interest income $1,000.00
  • Professional fees $9,300.00

Must Harry file an income tax return?

Answer: YES. Although his unearned income ($4,100.00) is below the $4,150.00 unearned income limit and his earned income ($9,300.00) is below the $9,400.00 earned income limit, his gross income ($13,400.00) is greater than $9,400.00 – the gross income threshold. Gross income is the total of your unearned and earned income.

For the above calculations, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. Gross income is the total of your unearned and earned income. i

To be continued….
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.

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