Tax Exemptions

             What exactly is a tax exemption?  An exemption on your income tax return is a fixed amount that is allowed to every taxpayer, which reduces the taxpayer’s taxable income.  For 2007, each personal exemption is $3,400.

             Your first exemption would be for yourself.  However, if someone else can claim you as their dependent, you are not able to take a personal exemption for yourself.  Your second exemption is normally for your spouse.  Your spouse is not your dependent, but you receive an exemption for him or her due to your marital relationship.  This is true if you are filing a joint return with your spouse.  If you and your spouse are filing separate returns, you can still claim an exemption for your spouse if he or she cannot be claimed by anyone else as a dependent, and he or she does not have any gross income.  If your spouse died during the year, you can claim an exemption for them if you did not remarry and your spouse has gross income, as long as you file a joint return that includes your spouse’s income.

             The next exemptions are for your dependents.  Dependents are broken down into two categories: qualifying children and qualifying relatives.  Qualifying children include your child, stepchild, foster child, sibling, step-sibling, or the descendants of any of those, as long as the child meets certain requirements.  The first requirement is that the child must have lived with you for greater than half of the year.  Next, the child must not yet be age 19, or not yet age 24 if a full-time student, or any age if disabled.  Lastly, the child must not have provided greater than half of his or her own support for the year.

             A qualifying relative is your relative who is not a qualifying child, or a member of your household.  To qualify, the relative must not have gross income of $3,400 or more.  Also, you must have provided more than half of the support for the relative for the year, or more than 10% in the case of a multiple support situation.

             There are additional restrictions on claiming a qualifying child or qualifying relative as your dependent.  You cannot claim them as your dependent if you, or your spouse if filing a joint return, can be claimed by someone else as a dependent.  If they are not a U.S. citizen or national, or a resident of the U.S., Mexico, or Canada for some portion of the year, with an exception for some adopted children, you could not claim them as a dependent.  You could not claim him or her as your dependent if they are married filing a joint return, except when the return is filed only to claim a refund and neither spouse would have an amount due if filing a separate return.

             If you need help with figuring out your income taxes, including which schedules you might need to file and which expenses are allowed as deductions, you are in the right place.  Try out the CPA search feature on this website to find a qualified professional in your area to assist you with all your tax and accounting needs.