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Solution for Concepts in Federal Taxation 2016 23rd Edition Chapter 8, Problem 1

by Kevin E. Murphy, Mark Higgins
1463 Solutions 16 Chapters 129053 Studied ISBN: 9781305585157 Taxation 5 (1)

Chapter 8, Problem 1 : 1.What is the difference between a personal exemption...

1.What is the difference between a personal exemption and a dependency exemption? Are all taxpayers allowed a personal exemption?

 

Step-By-Step Solution

1.Both types of exemptions are worth the same amount in terms of a deduction. Personal exemptions are allowed to the taxpayer(s) filing the return (this can never be greater than two), while dependency exemptions are allowed for those individuals who qualify as a taxpayer's dependent.

Not all taxpayers are entitled to a personal exemption.  A taxpayer that is claimed as a dependent of another is not allowed a personal exemption deduction.  The effect of this provision is to allow only 1 exemption deduction per individual.  Note: If there is total tax compliance, then the total number of exemptions taken equals the total U.S. population.  However, two factors, administrative convenience and tax evasion, prevent this from happening.  For purposes of administrative convenience, the government does not require every taxpayer to file a return.  Other taxpayers who are required to file a return choose not to file -- tax evasion.

 

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