 Hello and welcome to this session in which we will discuss this exercise or CPA simulation that helps you determine whether the individual is a qualifying relative or a qualifying child. Why is that important? It's important because if someone is a qualifying relative or a qualifying child they are considered a dependent and as a result it might give you tax benefit. There are various tests for qualifying relative and qualifying child so it's very important before you go over this exercise you went over the explanation you went over the prior session and understanding and learning what tests do you need for a qualifying child and what tests do you need for a qualifying relative. Now in this session I will go over an actual exercise to test your knowledge so for each situation we are going to determine whether this scenario applies to a qualifying child test or qualifying relative. If yes it applies whether the test is met or not and if it doesn't apply it means it's irrelevant it's irrelevant to that test because it doesn't it doesn't belong to that test category. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true, false questions, as well as exercises. Go ahead start your free trial today. Starting with taxpayer son has a gross income of 6500. First let's talk about qualifying child test. When it comes to gross income is that a relevant factor in determining whether that child is a qualifying child or not. So this is a child and it's your son and they earned 6500. The answer is this when it comes to the child test well the gross income is not a relevant test it doesn't matter whether your child make 6500, 65000 or 6.5 million it's not relevant why because the gross income is not is not one of the qualifying test for a child therefore it's not relevant it's not applicable no gross income test for the child it's an irrelevant test when it comes to a qualifying relative if the son is a qualifying relative would that be a relevant number and the answer is yes 6500 will be a relevant number why because if you're trying to qualify someone under the qualifying relative then there's a gross income test then what is that gross income test gross income means there's a number once you exceed that number you no longer qualify as a qualifying relative and the answer is the personal exemption for that year whatever that personal exemption happens to be if that qualifying relative whether that's your son a stranger or anyone else you are trying to qualify as a relative if their income exceeds a certain number and that number is personal exemption they're no longer qualify so is this a relevant test and the answer is yes does the child meet the qualifying relative under the gross income test and the answer is no and specifically it's no under the 2022 personal exemption because in 2022 the personal exemption is 4400 once the individual that you're trying to qualify have a gross income more than 4400 then they no longer qualify therefore the test is applicable but the person would qualify under a qualifying relative okay remember when I say 2022 it means if you're looking at this recording 2023 2024 2025 so on and so forth this personal exemption amount will change but the rule will be the same let's take a look at this scenario taxpayers niece has gross income of 3600 now we're talking about your niece not your son for a qualifying test what the gross income applies well let me tell you something when it comes to a niece a niece is considered a qualifying child well guess what because that's the case the same rule applies to a child when it comes to gross income it doesn't apply not applicable gross income test no gross income test for what we call the child brothers sisters and their linear decedents linear decedents is your nieces and nephews then when it comes to the gross income it doesn't apply same concept as the first example now when it comes to gross income when it comes to gross income for a qualifying relative is a niece could be considered a qualifying relative yes how about their gross income well their gross income is 3600 assuming we are using the 2022 income test well it's less than 4400 the gross income test is met it's relevant it's less than 4400 look at this scenario taxpayers aunt lives with him for the qualifying child test is an aunt considered a qualifying child well we said a nieces and nephews are with an aunt or uncle no test is not met uncles and aunt are not counted as qualifying child therefore the test is not met for a qualifying child test how about a relationship for a qualifying relative for a qualifying relative yes not because not because it's the tax payers and now if the tax payer and that's good that there is a there is a relationship not because of that because the aunt lives with them therefore met with the taxpayer met with the tax lives with the taxpayer and that's the reason why the test is met now again the qualifying relative is a little bit misleading because you think they have to be a relative they don't have to be a relative there are certain tests if it's a relative that's fine but not every relative is a qualifying relative I hope this makes sense taxpayer son is 26 and disabled qualifying test for the age do they meet the qualifying test initially you might say well they don't qualify for the age but since they are disabled they meet the test because they are disabled that's the only reason why they met the age test remember it's 19 above 19 to 24 the child has to be a full-time student the child for the qualifying relative there's no age test the qualifying relative there's no age test therefore it's there's no age test it's not applicable the age is not applicable to that taxpayer son age 17 has a gross income of 8200 and does not live with him does not live with their parents does not live with their parents let's look now at the residency test for the child for the qualifying child with this qualifying child residency test is met what is the test the test is you have to be live with the with the taxpayer for more than six months so it does not they don't live with them what about the gross income remember the gross income is not relevant therefore the residency test is not met the gross income is not relevant it doesn't matter how about the qualifying relative test okay the qualifying relative test if they are trying to qualify under the qualifying relative test and we're looking at gross income remember they will fail that one why because it's more than the personal exemption again we're talking about 2022 taxpayers cousin does not live with her it's a cousin does not live with her how about a relationship test with that qualify under the qualifying child let's first look at the relationship and the residency test well first of all the residency tests don't live because they have to live for half of the year that's out relationship does not is not met cousin is not a child how about taxpayers cousin does not live with her for relationship test well not met okay they are relative they are cousins but they don't live if they don't live then they're not member of a household notice here the aunts live yes it's they met the cousin well it's a cousin why don't they meet they don't need it because they don't live not a member of a household for the qualifying relative test taxpayer sister does not live with them for the residency test does it qualify well well they don't live with them residency test don't meet don't meet because you have to live with six month or more what about relationship test well the relationship test is met the sister can be why not the relationship test is met taxpayer sister has dropped out of school is age 16 and lives with him well relationship well yes sister yes that's that's met residency lives with them that's met and the age 16 that's met for the child all three are met how about the relationship test a sister yes that is met as a relationship for a qualifying relative taxpayers older nephew is age 22 and a full-time student for a child well nephew does it meet the relationship test yes does it meet the age test well it's 22 but they're full-time students yes but no why because for the child only the child meet the 19 to 24 not a nephew therefore under the age test they would not qualify if this was a child yes 22 and full-time that's fine relationship test yes is the relationship test met yes of course under an nephew relationship test is met taxpayer grants daughter lives with her and has a gross income of nine thousand three hundred does the granddaughter qualify under as a qualifying child for the grandma for the relationship test and the answer is yes son daughter granddaughter grants under all can be claimed as a child what about residency they live she lives with her grandma that's also met so both are met what about for a qualifying relative yes the relationship is met what about gross income does not meet the gross income it's a relevant test but it does not meet the gross income so I hope this exercise help you illustrate the difference test between a qualifying child and a qualifying relative it's a bit confusing for many students but that's what you have to do you have to practice you have to think about it what should you do now go to far hat lectures and look at the additional resources mcq's through false look at the notes that's going to help you understand this concept better qualifying child test and qualifying relative test is an important concept whether it's a CPA exam enrolled agent exam and of course your tax course good luck study hard and invest in yourself