Calculating Personal and Dependent Exemptions
Each exemption your client is entitled to claim reduces their taxable income by $2,750. There are two kinds of exemptions personal and dependent. As far as personal exemptions go, your client can take one for themselves and, if they are married, one for their spouse. Here are some rules to be followed in taking personal exemptions:
- Your client can only take the one exemption for himself or herself if they cannot be claimed as a dependent on someone else's tax return. Even if their parents can claim them as a dependent and chose not to, they are still not allowed to take a personal exemption on their tax return.
- If married and filing jointly, a personal exemption can also be taken for the spouse as long as someone else doesn't claim them as a dependent on their tax returns.
- If they are married and file a separate return, they may claim their spouse as a dependent only if their spouse is not filing a tax return, had no income and cannot be claimed as a dependent on another's tax return.
- If by the end of the year, your client has obtained a final decree of divorce or separate maintenance, they cannot take an exemption for their spouse, even if they provided all of his or her support.
- If your client's spouse died in the last year and they did not remarry, they may claim an exemption for their spouse, but only if they file jointly.
- If your client's spouse died in the last year, and they file a separate return, they can claim an exemption for their spouse only if the spouse had no income and cannot be claimed as a dependent on someone else's tax return.
Your client can claim a dependent exemption for a dependent if they provide more than half of his or her support and this person passes the five dependency tests. Any person who meets all five of the following tests qualifies as a dependent:
- Your client's dependent must live with them the entire year. However, if this person is a blood relative or related through marriage, this person does not have to live with them for the entire year. Temporary absences are ignored, such as if a person has been placed in a nursing home. Some other details to consider:
A person who dies during the year but was a member of your client's household until death qualifies. A child who was born and died in the same year also qualifies, although a stillborn does not
A person does not meet the member of their household test if their relationship violates a local law
A child qualifies for the member of household test before the adoption is legal if he or she was placed with your client for adoption by an authorized adoption agency and the child was a member of their household. Otherwise, the child must be a member of your client's household for the entire tax year
2. A foster child must live with your client for the entire year to qualify as a dependent. If a government agency makes payments to them for caring for the child, they may not claim them as a dependent.
- 2.If the dependent is married and files a joint return with his spouse, they may not claim this person as an exemption. However, if this person and their spouse file jointly to get a refund of all tax withheld, they may be able to claim this person if the other four tests are met.
- 3.The dependent must meet the following criteria:
·Must be a citizen or resident alien of the US
·A resident of Canada or Mexico
·An adopted child who is not a US citizen and lives with your client all year in a foreign land
4.The dependent's gross income must be less than $2,750 except if:
·He or she was under the age of 19 at the end of the year
·He or she was under the age of 24 at the end of the year and was a full-time student
5.Your client must have provided over half the dependent's support throughout the year.