Claiming personal tax exemptions can lower taxable income levels. How does the tax exemption system work, what are the 2010 allowances and rules and how should taxpayers claim on an income tax return?
What are Tax Exemptions and How do They Work?
A tax exemption is an annual allowance that is generally available to most taxpayers, with some exceptions. You can claim it on a personal level, for both yourself and a spouse and on a dependency basis if you have children or relatives who qualify. This sum is deducted from income thereby reducing the overall amount that will be taxed.
2010 Personal Tax Exemption Amounts
For 2010, the flat rate given for a tax exemption is $3,650. If you are eligible to claim on a personal basis only, then you can reduce your taxable income by this amount. If you are filing jointly with your spouse, then you may be able to claim an allowance for each of you (i.e. a total of $7,300). In 2010, personal exemptions will not affect deductions, as they have done in the past, even for higher income earners.
How do Personal Exemptions Work?
A personal exemption can be applied to the person filing the tax return and to a spouse. You may not, however, be automatically eligible as there are some exceptions. If, for example, another person could claim you as a dependent (whether they actually claim you under this status or not), then you will not qualify for your own exemption.
Generally spousal claims are made on joint returns, although it is possible to claim exemptions if you file separately and your spouse had no gross income and is not filing their own return. Again, they cannot be the dependent of another taxpayer.
Does Divorce or Separation Affect Personal Tax Exemptions?
If you divorce or separate (measured by final decree or separate maintenance) by the end of the tax year for which you are filing, then you will not be able to claim your spouse on your return. This is a general rule that is applied
even if you were the source of all support for your former wife or husband during that period.
Can You Claim a Personal Exemption After the Death of a Spouse?
The general joint and separate filing rules generally apply here but there are also some special conditions if a spouse died during the tax year. You cannot, for example, claim an exemption for a deceased spouse if you remarried during the year.
If you remarried in the year of your previous spouse's death, have no gross income and file jointly with your new husband or wife, then you can only be claimed as an exemption on that return. But, it may be possible to get exemption status twice if separate returns are filed. Here, you may be eligible for consideration on your new spouse's return and on the final return of the spouse that is deceased.
How to Claim a Personal Exemption
Each of the three 1040 forms requires you to claim in a particular way.
- Form 1040EZ: Combine the exemption amount for you and your spouse (if filing jointly) with your standard deduction(s) on line 5 in the Income section.
- Form 1040A: Complete the Exemptions area, lines 6a through 6d and line 26. This form also allows you to add claims for dependents.
- Form 1040: Again, complete lines 6a through 6d (for both personal and dependency exemptions) and then line 42.
The following articles on tax preparation and filing may also be useful:
- AARP 1040 Tax Calculator: How to Calculate Taxes Owed & Refunds
- IRS Form 8880 Tax Instructions: Retirement Contributions Credits
- AARP Tax-Aide: Free Tax Preparation Assistance & Help for Seniors