Exemptions on taxpayer’s federal tax return is a good thing since it reduces your income that is subject to tax. And this means taxpayers can keep more of their hard earned money.
There are two types of exemptions: Personal Exemptions and Dependent Exemptions. In an earlier post (2012 Standard Deduction, Personal Exemption and Tax Brackets), we learned the amount given for each exemption and how to report it on your tax return. The following amounts are per person, not per family.
2012 Personal Exemption: $3,800 (increase of $100 from 2011)
2012 Dependent Exemption: $3,800 (increase of $100 from 2011)
Last night I realized we never looked at the specifics of a personal exemptions. So, let’s do it.
2012 Personal Exemptions
Taxpayers can claim a personal exemption for themselves, and if they are married, they may be able to claim a second exemption for their spouse.
To claim a personal exemption for a spouse,
- The taxpayers must be married by the last day of the year, or
- The spouse must have died during the year, and the taxpayer did not remarry during the year
- If married filing separately, spouse must have no gross income.
- Spouse is not a dependent on another person’s tax return.
Although similar, a personal exemption is not the same as a dependent exemption. A different set of rules exist for determining when a taxpayer is entitled to claim a dependent for the dependency exemption. Given these rules are ridiculously complex with many “tests” for qualifying child and qualifying relative, I’ll dive into this on separate day.
Examples of Personal Exemptions
- Eric and Megan are married, have income from employers and file as married filing jointly. Neither are dependents. Eric and Megan can claim two personal exemption.
- Tom and Cindy are married, both have income and file as married filing separately. Neither are dependents. Cindy can claim a personal exemption for herself but not one for Tom. Tom can only claim an exemption for himself.
- Dick and Ellen filed as married filing jointly in 2011. Dick died in 2012 and Ellen has not remarried. Ellen can claim two personal exemptions and file as married filing jointly for 2012 tax return.
Looking Ahead To Next Year
Keep in mind that each taxpayer and their spouse can claim a personal exemption, however, this may change next year. Favorable tax provisions are set to expire at the end of this year. Unless Congress extends certain provisions, exemptions will phase-out for high income taxpayers.
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