Eight Tax Facts about Exemptions and Dependents

Most people can claim an exemption on their tax return. It can lower your taxable income which, in most cases, reduces the amount of tax you owe for the year. Here are eight tax facts about exemptions to help you file your 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 $4,050 for each exemption you claim on your 2016 tax return. Your deduction may be reduced or eliminated, if you are a high-income taxpayer.
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 of another taxpayer.

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. To learn more about these rules, please call our office.
4. Report Health Care Coverage. The health care law requires you to report certain health insurance information for you and your dependents. The individual shared responsibility provision requires you and each of your dependents to either:

• Have qualifying health insurance, called minimum essential coverage, or
• Have an exemption from this coverage requirement, or
• Pay a shared responsibility penalty when you file your 2016 tax return.

Please call us, if you’d like more information about these rules.

5. Some People Don’t Qualify. You normally may not claim married persons as dependents, if they file a joint return with their spouse. There are some exceptions to this rule.
6. Dependents May Have to File. A person who you can claim as your dependent may have to file his or her own tax return. This depends on certain factors, like total income, marital status and whether your dependent owes certain taxes.
7. No Exemption on Dependent’s Return. If you are entitled to claim a person as your 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. In other words, you cannot choose which return will claim the exemption; the rules determine where the exemption is deductible.
8. Exemption Phase-Out.The $4,050 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.

Don’t hesitate to call our office, if you have any questions about exemptions and dependents.