How to Determine the Tax Exemptions

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Tax exemptions are given by the Internal Revenue Service to each taxpayer. In addition, taxpayers may claim the exemptions for their dependents provided the dependents meet the exemption qualifications. A tax exemption is a whole dollar amount used to reduce your adjusted gross income for the purpose of lowering tax liability, the amount of tax owed to the Internal Revenue Service. As of 2011, the amount of each exemption taxpayers are eligible to claim on 2010 income tax returns is $3,650 per person. You may only claim an exemption for yourself and your spouse if you are filing a joint income tax return and your dependents.

Use the Internal Revenue Service’s dependent test to see if your dependents qualify as your dependents for tax-exempt purposes. Determining factors include age, relationship, residency and care. Your dependent must meet all four of these for you to claim him or her as an exemption on your income tax return.

Determine qualification using the relationship test, which is the most important of the four tests. Dependents must be your child, adopted child, stepchild, foster child, sibling, stepsibling or the children or grandchildren of any of those relatives.

Use the residency and support tests to further determine whether or not each dependent qualifies for a tax exemption. Information required for this test is the amount of time your dependent lived with you during the tax year and the amount of their support, such as housing, groceries and utilities, you provided. Your dependent must live with you at least half of the tax year to qualify. You must provide at least 50 percent support for each dependent throughout the tax year.

Determine whether or not your dependent meets age requirements. A qualifying dependent is one aged 19 or younger. The exception to this rule is if the child is a full-time college student for at least five months of the tax year. In that case, the age limit is raised to 24.

List each of your qualifying dependents, their social security numbers and their relationship to you in the exemptions section of your income tax return. For each qualifying exemption, you receive a $3,650 tax break.

Warnings

  • Taxpayers that claim working dependents as a tax exemption remove the dependent’s ability to claim his own exemption on his own income tax return.