Tax exemptions reduce your taxable income for the tax year and are divided into two categories: personal exemptions and dependent exemptions. Each exemption is worth $3, 500 for the 2008 tax year, but different rules apply to each type of deduction.
Usually, you can claim one exemption for yourself, one for your spouse if you are married, and one for each dependent if you have children. However , if another taxpayer claims you as a dependent, or is entitled to claim you as a dependent, you are not eligible for a personal tax exemption.
The following list shows the tax exemption effect on your gross income:
Number of Tax Exemptions: Allowed Tax Deduction
1: $3, 500
2: $7, 000
3: $10, 500
4: $14, 000
5: $17, 500
6: $21, 000
7: $24, 500
8: $28, 000
9: $31, 500
10: $35, 000
You may typically claim one exemption for yourself if you are a single taxpayer.
If you are married and file a joint return, you may claim one exemption for yourself and one for your spouse. If you file a separate tax return, you are only able to claim your spouse for an exemption if your spouse is not filing a return, has no gross income, and was not the dependent of another taxpayer. If your spouse dies during the tax year, you are typically permitted to claim their tax exemption for the year.
You must be married on the last day of the tax year to claim a tax exemption for your spouse on your tax return, and if you obtain a final divorce or separation decree by December 31st, the last day of the tax year, you may not claim your spouse’s tax exemption.
You may be able to take additional personal exemptions, up to $500 each for a maximum of $2000, for providing housing to victims displaced by tornadoes, storms, or flooding in a Midwestern disaster area.
Exemptions for Dependents
A person may qualify as a dependent, and be eligible for a tax exemption, if they are a Qualifying Child or Qualifying Relative. There are five important tests that an individual must pass in order to be considered a Qualifying Child for a tax exemption:
The child must be your daughter, son, foster child, brother, sister, half brother, sister, half sister, step sister, step brother, or any descendent in the above outlined.
The child must be either any age and forever or entirely disabled, underneath the age of 24 at the end in the year and a full-time student, or under the age of 19 by the end of the tax year.
The child must have not provided more than half of his / her own monetary support pertaining to the year.
The child must have lived in your home pertaining to six months or more out of the season.
You must become the person who will be entitled to state the child if the child is actually a qualifying child for more than one person.
If your child was born upon or prior to December 31st, and all five of the tax exemption checks are attained, then you may state the child for any dependency tax exemption in your tax give back.
You may even add exemptions for dependents that are Being qualified Relatives. An eligible Being qualified resident must meet the subsequent four requirements:
The person might not be the being qualified child of another taxpayer or your own being qualified child.
The individual must be associated with you in one of the following ways: they may be your kid, stepchild, used child, grand child, great-grand child, son or daughter in legislation, father or mother in law, buddy or sister in legislation, parent, buddy, sister, grand parent, step-parent, stepbrother or sister, fifty percent brother or sister, and, if related by blood, uncle, aunt, niece, or nephew.
The person’s gross income for the entire year must be less than $3, 500.
You must offer greater than half of the person’s total support pertaining to the year.
There are many extra rules and qualifications that apply to tax exemptions.
Reductions of Exemptions
The tax deduction for personal exemptions begins to phase out after your adjusted gross income (AGI) gets to a certain limit. If your AGI exceeds the limit, based on your filing status, you have to reduce the dollar amount of your exemptions by 2% for each $2, 500 that your AGI exceeds the limit decide below. You can only shed up to 50% of your exemptions through phase-out AGI reductions. The AGI income ceilings are listed below and divided by filing status:
Phase-out of Exemptions:
Wedded Filing Separately $119, 975
Single $159, 950
Head of Household $199, 950
Married Filing Jointly $239, 950
Being qualified widow(er) $239, 950