How Exemptions and Dependents Can Reduce Taxable Income | Business
Most taxpayers can claim an exemption for themselves and reduce their taxable income on their tax return. They may also be able to claim an exemption for each of their dependents. Each exemption normally allows them to deduct $4,050 on their 2016 tax return. Here are seven key points to keep in mind on dependents and exemptions:
1. Personal Exemptions. Taxpayers can usually claim exemptions for themselves and their spouses on a jointly filed tax return. For married taxpayers filing separate returns, an exemption can only be claimed for a spouse if that spouse:
- Had no gross income,
- Is not filing a tax return, and
- Was not the dependent of another taxpayer.
2. Exemptions for Dependents. A dependent is either a child or a relative who meets a set of tests. Taxpayers can normally claim dependents as exemptions. List a Social Security number for each dependent. For more on these rules, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.
3. No Exemption on Dependent’s Return. If a taxpayer can claim a person as a dependent, then that dependent cannot claim a personal exemption on his or her own tax return. This is true even if no one claims that person on a tax return.
4. Dependents May Have to File. A dependent may have to file a tax return. This depends on certain factors like total income, whether they are married and if they owe certain taxes.
5. Exemption Phase-Out. Taxpayers earning above a certain amount will lose part or all the $4,050 exemption. See Publication 501 for details.
6. E-file Your Tax Return. The IRS urges taxpayers to kick the paper habit. IRS E-file options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.
7. Try the IRS Online Tool. Get questions answered by using the Interactive Tax Assistant tool on IRS.gov.
This information is not intended to be a substitute for specific, individualized tax advice as individual situations will vary. Royal Alliance Associates, Inc., Georgetown Capital and its advisors are not engaged in rendering tax advice.
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Prepared by the IRS. For more information go to www.irs.gov.
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Insurance services offered through Georgetown Capital Group, which is independent of Royal Alliance Associates, Inc. with separate ownership, and is not registered as a broker-dealer or investment advisor.
Joseph V. Curatolo, President of Georgetown Capital Group
5350 Main Street, Williamsville, NY 14221
Phone #(716) 633-9800 Toll Free 1 (800) 648-8091 Fax #(716) 633-9789