Nearly everyone can claim tax exemptions on their tax return to lower their taxable income.
Here are the top 7 tax facts about exemptions to help you plan for your next tax return.
1. Exemptions cut income. There are two types of exemptions. The first type is a personal exemption. The second type is an exemption for a dependent. You can usually deduct $3,950 for each exemption you claim on.
2. Personal exemptions. You can usually claim an exemption for yourself. If you’re married and file a joint return, you can claim one for your spouse, too. If you file a separate return, you can claim an exemption for your spouse only if your spouse:
• Had no gross income,
• Is not filing a tax return, and
• Was not the dependent on another person’s tax return
3. Exemptions for dependents. You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative who meets a set of tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim on your tax return.
4. Report health care coverage. The health care law requires you to report certain health insurance information for you and your family. The individual shared responsibility provision requires you and each member of your family to either:
• Have qualifying health insurance, called minimum essential coverage, or
• Have an exemption from this coverage requirement, or
• Make a shared responsibility payment when you file your 2014 tax return.
5. Dependents may have to file. A person who you can claim as your dependent, may have to file their own tax return. This depends on certain factors, like the amount of their income, whether they are married and if they owe certain taxes.
6. No exemption on dependent’s return. If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person on your tax return. This rule applies because you can claim that person is your dependent.
7. Exemption phase-out. The $3,950 per exemption is subject to income limits. This rule may reduce or eliminate the amount you can claim based on the amount of your income.
If you have a mistake on your current or previous tax returns, then get the return corrected immediately. Problems with the IRS don’t go away, they only grow larger.