Total taxable income, age and marital status generally determine whether you must file a tax return for 1978. The gross income minimums for filing remain the same for 1978 as they were for 1977.
These minimums for the various filing categories, and the normal number of $750 personal exemptions which apply in each case, are shown in the accompanying table.
TAX TIP: The filing minimums are raised for 1979 as a result of the across-the-board increases in the personal exemption and the zero bracket amounts. The numbers are not given here to avoid possible confusion with 1978 requirements.
You should file a return (even if you have no tax liability and paid no taxes during the year) if you are entitled to a "refund" as a result of the earned income credit. This credit, available to certain taxpayers with annual income of less than $8,000, will be explained in more detail in Saturday's column.
If you are not required to file under any of the applicable rules, but income tax was withheld from your pay during 1978, you should file a return to claim a refund of the amount withheld. WHICH FORM?
Any taxpayer may use Form 1040, the so-called "long form." You should use the "short form" 1040A if your 1978 income does not exceed $40,000 on a joint return or $20,000 on all others; that income consists only of wages or other employe compensation and $400 or less of either interest or dividends; and you do not itemize deductions.
You must use Form 1040 if your adjusted gross income exceeds the $40,000/$20,000 ceiling; if you had pension or annuity income, capital gains dividends, or income from rental property, a business, estate, or trust; or if you received more than $400 in either interest or dividend income.
TAX TIP: If you have no tax liability and file only to claim the earned income credit, you may use Form 1040A even if you received more than $400 in interest or dividends (or both) in 1978.
Form 1040 is also required if you itemize deductions; claim any "adjustments to income" such as moving expenses, employe business expenses, an IRA or Keogh investment, or alimony payments; or if you are entitled to the credit for the elderly, for child or dependent care expenses, or the sick pay deduction.
And Form 1040 must be used if you compute your tax by income-averaging; if you paid estimated tax for 1978 or wish to apply any part of your 1978 refund to 1979 estimated tax liability; or if the total number of your exemptions exceeds the highest number given on the tax table for your filing status.
Finally, you must use Form 1040 if you may be claimed as a dependent on your parent's return, had $750 or more in unearned income (such as interest or dividends), and had earned income of less than $2,200 ($1,600 if married filing separately), or if you file as a qualifying widow(er), as explained later in today's column.
If you were married on Dec. 31, 1978, you are considered by the Internal Revenue Service to have been married for the entire year. If you were unmarried (single, divorced or legally separated) on that date, then for income tax purposes you are considered to have been single for all of 1978.
You may elect to file separate returns even if you are married; but most couples will pay less tax if they file a joint return. In only a few cases -- usually when both husband and wife have substantial independent incomes -- will separate returns be the better method.
TAX TIP: If one spouse had sizable unreimbursed medical expenses during 1978, check separate filing for possible tax savings.
If you do file separately you must both use the same method for computing the tax. That is, if one itemizes, the other must also itemize and may not use the zero bracket amount.
In this case, if the total of your itemized deductions (line 39 of Schedule A) is less than the zero bracket amount, you must perform a special calculation on Schedule TC. See page 11 of the instruction booklet.
If you were married but living apart from your husband or wife during the entire year and you meet both of the following tests, you may file a separate return as a single individual:
You paid more than half the cost of maintaining your home during 1978; and
Your home was also the principal home of your dependent child (or stepchild) for more than six months of the year.
TAX TIP: In this situation you may qualify to file as head of a household; check the requirements below. IF YOU ARE WIDOWED
If your husband or wife died during 1978 and you had not remarried by Dec. 31, you may file a joint return and claim both your personal exemption and the exemption for your deceased spouse.
Sign the return yourself then enter "filing as surviving spouse" under your signature; and enter the date of your spouse's death in the name and address space at the top of the form.
If you are due a refund on the joint return, you must also file Form 1310 with the return to establish your right to the refund. It is not necessary to send a copy of the will or death certificate with the return.
TAX TIP: If an executor or administrator has been appointed for the estate, he or she may have filed (or may intend to file) a separate "final return." In any case, the content of an estate tax return may have an impact on your income tax return. If the executor is not himself a professional, you are likely to need help in this situation.
If your husband or wife died during 1976 or 1977 and you had not remarried by the end of 1978, you will normally file as a single individual. But you may be eligible to file as a "qualifying widow(er)" for 1978 if you meet all three of these tests:
You were eligible to file a joint return in the year of your spouse's death (whether you actually filed that way or not).
Your home was the main home during 1978 of a child (or stepchild) whom you claim as a dependent.
You paid more than half the cost of maintaining that home for the entire year.
If you qualify, you may not claim the personal exemption for your deceased husband or wife even though you are using the joint return tax rate. This personal exemption can be taken only if death occurred in 1978. HEAD OF A HOUSEHOLD
If you were single on Dec. 31, you may be eligible to file as "head of a household" if you meet any one of the following tests:
You paid more than half the expense of maintaining your home, which was also the principal home all year of your unmarried child, step-child, foster child or grandchild, whether or not the child qualifies as your dependent.
You paid more than half the cost of upkeep for your home, which was also the principal home of any other relative you claim as a dependent (except a dependent under a mutual support agreement).
You paid more than half the cost of maintaining a home, which was the principal home of your dependent mother or father (or both), even if you did not live in it yourself.
A taxpayer filing as head of a household does not get any extra personal exemptions, but does get the benefit of a lower tax rate than other single taxpayers. EXTRA EXEMPTIONS
In addition to the basic personal exemption for each taxpayer, a person who is 65 or older or legally blind may claim an additional $750 exemption regardless of filing status. But these extra exemptions are available to the filing taxpayer(s) only; they may not be claimed for dependents.
If you claim the additional exemption for blindness, each year you must attach a statement that you (or your spouse) is completely blind, or a statement from your physician or optometrist that your vision with glasses is no better than 20/200 or that your field of view is no greater than 20 degrees. EXEMPTIONS FOR DEPENDENTS
The IRS prescribes five tests to determine if a person qualifies for a dependent exemption on your tax return.
Citizenship or residency test. A dependent must be either a U.S. citizen or have resided in the United States, Canada or Mexico during 1978. (This test is waived for an alien child adopted by and living with a U.S. citizen in a foreign country.)
Relationship or member of househould test. A relative (as defined on page 7 of the IRS instruction booklet) need not have lived in your home to qualify as a dependent. If you file a joint return, a dependent meets this test if related to either spouse.
Dependents who are not related to you or your spouse must have lived in your home for the entire year. But a student is considered to have lived with you even if he or she was away at school much of the year if your home was his or her home when not at school. Similarly, hospitalization is not a disqualifying absence from the home.
Income test. To qualify, a dependent must not have received $750 or more in income during 1978 -- but you need count only income which is subject to tax. Do not include, for example, bona fide gifts received by the dependent; social security or Veterans Administration benefits; interest on tax-exempt securities; or scholarhip payments.
This income test is waived for a child who was under the age of 19 on Dec. 31, or who was a full-time student regardless of age. (For this test, a student is defined as one who was enrolled full-time at a regular educational institution during any five months of the year.)
You may claim a dependency exemption for such a child even if the child files a tax return on which he claims his own personal exemption, if he meets the other tests.
Support test. In order to claim an exemption for a dependent, you must have provided more than half of his or her support during 1978. Unlike the income test, all income of the dependent (except scholarships), whether taxable or not, must be considered in determining how much the dependent contributed to his own support.
However, only as much of that income as was actually spent by the dependent on items of support -- that is, on necessary living expenses -- need be included in the calculation. New for 1978: Capital items such as a car must be included if purchased by or given to a dependent for his or her own use.
Scholarship payments received and actually spent for the purpose awarded should not be counted. Any money your dependent paid for life insurance premiums, income tax payments, or social security contributions should also be excluded.
Similarly, do not count as support any money which your dependent deposited in a savings account, unless he withdrew it later in 1978 and then spent it on his own support. The amount of income during the year is not the criterion for this test, but rather the amount actually spent by the dependent from his own funds for his own support.
You should include in your contributions to the support of the dependent the cost of living expenses (lodging, food, clothing, medical care, education) and of capital items such as a car or television set.
If the dependent lived in your home, count the fair market value the lodging provided, but only the actual cost of food or other support elements. You may count the value of lodging for the full year even if the dependent was at school part of the year, if the lodging was available to him whenever he came home.
If you provided separate living quarters -- such as an apartment for a dependent parent -- count the cost to you of that housing. But if your parents lived rent-free in a house you own, use the fair rental value (based on comparable housing in the same area).
Joint return test. Normally a married person who files a joint return with his or her spouse may not be claimed as a dependent by another taxpaper.
However, you may claim an exemption for a married dependent who meets the other tests if the dependent's spouse files a separate return and doesn't claim an exemption for your dependent. CHILDREN OF DIVORCED PARENTS
As a general rule, the parent who had custody of a child for the greater part of the year may claim the child as a dependent. But the other parent may take the exemption if the decree of divorce or separation agreement says so and he or she contributed $600 or more to the child's support during 1978.
In the absence of a specification in the agreement, the "non-custodial" parent may claim the exemption if he or she provided at least $1,200 for support during the year and the parent having custody cannot prove a larger contribution to the child's support. SHARED SUPPORT
Several taxpayers may jointly support a dependent (Brothers and sisters caring for a dependent parent, for example) with no single person contributing more than half of the total support.
If together you contributed more than half of the support and the dependent otherwise qualifies, one of the group may take the exemption if he or she provided at least 10 percent of the total support and the others agree to waive their claims.
Each year a different taxpayer may claim the exemption, so it may be rotated among the several contributors from year to year. The taxpayer claiming the exemption must attach to his or her return a separate Form 2120 (agreeing to the arrangement) for each other qualified contributor to the total support. CAPTION: Chart, The table shows the minimum incomes for various filing categories and the normal number of $750 personal exemptions that apply in each case. By Milton Clipper -- The Washington Post