There are two major types of personal exemptions taxpayers may take on their tax return for themselves and the people they know. When they are claimed, exemptions can reduce or entirely eliminate your obligation to pay taxes. Most taxpayers are entitled to an exemption on their tax return that reduces your tax bill in the same way a deduction does. They are:
- Personal exemptions for yourself and your spouse
- Dependency exemptions
- What Is the Personal Exemption for Yourself?
- What Is The Personal Exemption for Your Spouse?
- What Is the Dependency Exemption?
- How Many Dependency Exemptions May I Take on My Tax Return Each Year?
- What Qualifies Someone as a Dependent?
- Should I Contact a Lawyer Regarding my Personal Exemption Questions?
The personal exemption is a statutorily determined exemption ($3100 as of 2004) that all taxpayers may take on their tax return from their gross income. As long as you are not claimed as a dependent on another taxpayer’s return then each individual filing alone may claim one personal exemption. This is a fixed amount that generally increases each year. For young persons, if your parents claim you as a dependent, you may not take this exemption from your income. If you are married and file a joint tax return, both you and your spouse each get an exemption.
If you are married and file a separate return, you can claim an exemption for your spouse only if your spouse collected no income for the tax year, is not filing a return and was not the dependent of another taxpayer. The IRS has decided that since the taxpayer supports an unlearning spouse, the taxpayer entitled to deduct a standardized support cost from their gross income. The amount of deduction changes quite often. Check with your local taxing authority to determine the statutory amount.
You are permitted one exemption for each person you can claim as a dependent. The dependency exemption allows a taxpayer to deduct a standardized amount from his tax return each year for support of dependents. You can claim a dependent even if that dependent files their own tax return. However, you cannot claim a dependent if that person could be claimed as a dependent by another taxpayer. A dependent is a qualifying child or a qualifying relative. The specific dollar amount of the statutory entitlement changes almost yearly.
Theoretically, there are no limitations on how many dependency exemptions a single taxpayer may take provided as long as the person meets the statutory test of a dependent.
In order to be a dependent and thus be claimed as a dependent, there are five requirements that must be satisfied.
- Relationship – Dependent must either be a relative or a member of your household for the entire year.
- Citizenship – Dependent must either be a
- US citizen
- resident of the US, Canada or Mexico for part of the year
- A legally adopted foreign child now living in the US, or
- An adopted child living with you the entire year in a foreign country
- Joint Return – Dependent may not file a joint return with a spouse.
- Support – Dependent must be supported by greater than 50% by the taxpayer.
- Income – Dependent can’t earn more income than the exemption amount (which also changes yearly) – a major exception to the income test exists for college students earning income while also being claimed as a parent’s dependent.
With the variety of tax software available, most people are capable of filing their taxes on their own,. However, the tax language can be difficult to navigate and therefore the help of a tax attorney may be useful.
More complex tax returns (i.e. those done by business owners) may require more time and perhaps the advice of an experienced business lawyer. Additionally, should you have a dispute with the taxing authority about personal exemptions you may need to go to court, where you will most certainly need the help of an experienced tax attorney.