How much is tax exemption

how much is tax exemption

Other People Are Reading

Exemption Tax Savings

The personal and dependent exemptions you claim each year reduce your taxable income just like deductions do. For example, suppose for the 2010 tax year you file a joint return and have two children you claim as dependents. This situation entitles you to claim four exemptions, each of which is $3,650 for a total of $14,600. If your taxable income after claiming all deductions except for these exemptions is $70,000, then the amount of tax you owe is $9,869. However, reducing your taxable income by the exemptions reduces your taxable income to $55,400, which also reduces your tax bill to $7,476.

Personal Exemptions

The easier of the two types of exemptions to claim are personal exemptions. Regardless of whether you file Form 1040, 1040A or 1040EZ, you can always reduce your taxable income by one personal exemption for yourself. If you are married and file a joint return with your spouse, then you can claim two exemptions; one for each of you. The only condition to claiming a personal exemption is that you and your spouse not be the dependent of another taxpayer.

Dependent Exemptions

In addition to the personal exemptions you claim, you can take one for each dependent

you report on your tax return. Each person must be eligible to be your dependent. For example, if you intend on claiming your children as dependents, they need to be under the age of 19, or under the age of 24 if a full-time student. Each of your children must reside with you for more than half of the tax year unless they are away at school, and each of them must not provide more than half of their own financial support. This also includes your step, foster and grandchildren as well as many others. Adults are also eligible to be your dependents if you satisfy the requirements specific to that person.

Reporting Exemptions

Reporting your total exemptions on your tax return is relatively easy compared to other types of deductions. If you file Form 1040 or 1040A, you simply check the boxes to claim personal exemptions for yourself and your spouse. If you claim dependents, you only need to list their names, Social Security numbers and their relationship to you. When filing a Form 1040EZ, you are only allowed to claim personal exemptions. So if you qualify to file using Form 1040EZ but have dependents, you can save more in tax by using the Form 1040 or 1040A instead.

Source: ehow.com

Category: Taxes

Similar articles: