Exemptions reduce your taxable income. To use an illustration from 2005 when you were allowed $3,200 per exemption, if you were entitled to two exemptions that year, you could deduct $6,400 from your taxable income. This could have a significant impact on how much you will ultimately owe. Keep in mind, however, that you could lose these exemptions if your adjusted gross income is above a certain amount.
You usually can claim exemptions for yourself, your spouse, and each person you can claim as a dependent. But if you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim a personal exemption on his or her own tax return.
Below you'll find more information on exemptions and how they could benefit you come tax time.
How to Claim Exemptions
How you claim an exemption on your tax return depends on which form you file:
Form 1040EZ. If you file Form 1040EZ, the exemption amount is combined with the standard deduction and entered on line 5.
Form 1040A. If you file Form 1040A, complete lines 6a through 6d. The total number of exemptions you can claim is the total in the box on line 6d. Also complete line 26 by multiplying the number in the box on line 6d by $3,200 (using the 2005 exemption amount). If your adjusted gross income is more than $109,475 (in 2005), this exemption could phase out.
Form 1040. If you file Form 1040, complete lines 6a through 6d. On line 42, multiply the total exemptions shown in the box on line 6d by $3,200 and enter the result. If your adjusted gross income is more than $109,475, this exemption could phase out.
You are generally allowed one exemption for yourself and, if you are married, one exemption for your spouse. These are called personal exemptions.
Your Own Exemption. You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent.
Your Spouse's Exemption. Your spouse is never considered your dependent, but on a joint return, you can claim one exemption for yourself and one for your spouse. If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse as a dependent. This is also true if your spouse is a nonresident alien. If you obtained a final decree of divorce or separate maintenance by the end of the year, you cannot take your former spouse's exemption. This rule applies even if you provided all of your former spouse's support.
Exemptions for Dependents
You are allowed one exemption for each person you can claim as a dependent. You can claim an exemption for a dependent even if your dependent files a return. Beginning in 2005, the term "dependent" means a:
- Qualifying child (See IRS definition) or
- Qualifying relative (See IRS definition)
An overview of the rules for claiming an exemption for a dependent:
- You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer.
- You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns.
- You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico, for some part of the year.
- You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative.
Contact an Attorney to Learn More About Tax Exemptions
Exemptions certainly come in handy during tax season; however, most people may not be aware of all the exemptions that they're entitled to claim. An experienced tax law attorney can help you prepare your taxes and ensure that you only pay what you owe under the law -- and no more.