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Personal Tax Exemption

What is a tax exemption?

This means a reduction of taxable income. Tax exemptions allow taxpayers to claim exemptions on their tax returns to reduce the amount of taxable income.

Personal exemptions are deductions a taxpayer is entitled to claim, for themselves and their spouse. There are two types of exemptions that fall under this category, personal exemptions for self and spouse; and dependent exemption for minor children, children over 24 that are fulltime students and elderly parents. The Internal Revenue Services (IRS) allows one credit per dependent claimed on the tax return.

There are many thingsthat taxpayers must know before claiming tax exemption on their tax return. The IRS has several guidelines put into place not only to save the government but also to get the taxpayer the most out of their return.

Read below to find out more about personal exemption tax.

Claiming Personal Exemptions

If you can be claimed as a dependent on another person’s tax return, you cannot claim a personal exemption for yourself. There is a difference between the standard deduction that every taxpayer can claim and a personal exemption.

There are income caps on personal exemptions, and yearly this amount can change.

Every tax year, there is a specific exemption amount that can be claimed per person.  There are also guidelines and restrictions regarding how many times someone can be claimed and you must provide Social Security numbers for each person you intend to claim. You cannot claim yourself on your tax return if someone else is  

A spouse is not considered a dependent but instead be claimed under personal exemptions.

Claiming dependent tax exemptions

Claiming a dependent also falls under these guidelines. A person can only claim a dependent if, they are not being claimed by another person, or themselves. If married, and you file a joint return it enables you to claim two exemptions.

 The taxpayer must prove that the dependent lives in the same residence, is related, provide proof of age and prove that the person depends on them for financial support.

Taxpayers are allowed one exemption per dependent; the dependents may include

  • minor children,
  • young adult children living at home enrolled fulltime in school. ,
  • step children not being claimed by other parents,
  • foster or adopted children
  • and or elderly parents.

Disabled children or other dependents may qualify for additional tax breaks.

For high-income taxpayers, the personal exemption is subject to a phase-out, depending on your income level and filing status.

Personal exemption phase-out

Phase out of personal exemption means, there is a cap on how much you can claim, if you are in a higher tax bracket.

Single tax bracket exemption amount starts close to $300,000 and ends close to $400,000.

Widowed or married filing jointly starting at $300,000. Ending around $350,000.

Married filing separate begins a little under $200,000 and caps out close to $300,000.

Head of Household a minimum of $250,000 topping off at a little over $400,000.

Figuring out your tax bracket

There are seven Federal income tax brackets. Which one you fall under, depends on your annual income.

Single tax bracket is 10% with an income of around $9,000 - $400,000. At a 10% tax rate, a single taxpayer with monthly income of $1,200, will owe $120 in Federal tax. The tax-rate increases depending on annual income.  Figuring out your appropriate tax bracket is important for proper tax preparation. It is how the IRS determines if you even should file. Your tax bracket also determines what exemptions and deductions you can claim.

Widowed or married filing jointly is a 10% tax rate, with incomes of $0 to $500,000. Couples with an annual income of $18,500 must pay $1,800 which is 10%. As the income scale rises, there is an addition percentage of taxes due.

Married filing separate with a 10% taxable income of $9,000 to $200,000 or more. At 10% of $9,000 the taxes owed will be $900. The percentage of taxes owed will increase the higher the tax bracket.

Head of Household incomes ranging from $0 to $400,000 Or greater. At 10% tax, a person with annual income of $6,000 will owe $600.

Standard deductions

There are two ways you can claim your deductions, but you can only choose one. Standard deductions mean that you have decided not to itemize. However, you can choose whatever method results in the lowest amount of tax.

The standard deduction per filing status

The standard deduction is taken out of the Adjusted Gross Income (AGI). Which decreases your taxable earnings. The general standard earning allowance is similar to this;

  • If your filing status is single, or married filing separate the standard deduction is a little under $6,500
  • Married filing jointly or qualified widow around $13,000
  • Head of household slightly over $9,000
  • Standard deductions that apply for elderly and blind tax payers is around $1,250. This amount increases if the taxpayer is widowed and unmarried.

Divorce and death can affect personal tax exemptions. For instance, if you got a divorce within the year you wish to file, regardless of what time of year, you can no longer claim that spouse. If your spouse died within the taxable year, you could still file one personal exemption for that spouse. This will not apply in the case of filing for back taxes. You must claim a personal exemption for that spouse within the year he or she died.

Itemizing deductions

Itemized deduction means, a detailed account of expenses deducted from your taxable income. It is only beneficial to itemize your deductions if, the amount adds up to more than standard deductions.

Here are some expenses that may qualify for itemization.

There are also deductions that can be used, regardless of standard or itemization. Below is a few of these deductions.

  • Interest and fees on student loans and tuition
  • Job-related moving expenses
  • Retirement or IRA accounts
  • Teacher or professor expenses

This is not a complete list of deductions. Always Ask an Expert if you have questions about itemization.

Both standard and itemized deductions have a phase out cap similar to the personal exemption. For single taxpayers, this cap is around $250,000 And for those who are married, it is around $300,000.

Another exemption is that which can be claimed by a taxpayer who has no tax liability. This simply means that the employer still withholds Social Security from the taxpayer's check, but does not hold out Federal or State tax.

The amount that a person may claim as personal exemption may differ from year to year. It is important for you to be aware of the conditions that qualify you for these exemptions. Ask a Tax Expert if you have any doubts about how to claim these exemptions or need further information.

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