360° Coverage : Taxes From A To Z (2014): P Is For Personal Exemption

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Taxes From A To Z (2014): P Is For Personal Exemption
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Taxes From A To Z (2014): P Is For Personal Exemption

Mar 29 2014, 7:33pm CDT | by

P is for Personal Exemption. After you’ve figured your deductions and adjustments to income, you have one last stab at reducing your taxable income: personal exemptions. Personal exemptions further...

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29 weeks ago

Taxes From A To Z (2014): P Is For Personal Exemption

Mar 29 2014, 7:33pm CDT | by

P is for Personal Exemption.

After you’ve figured your deductions and adjustments to income, you have one last stab at reducing your taxable income: personal exemptions. Personal exemptions further decrease your taxable income before you determine your tax. For 2013, the personal exemption amount is $3,900 (it’s $3,950 for 2014).

You are generally allowed one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If you can be claimed as a dependent by another taxpayer, you cannot claim the personal exemption for yourself even if the other taxpayer doesn’t actually claim you on their return.

Your spouse is never considered your dependent. You may, however, be able to claim a personal exemption for your spouse depending on your circumstances:

  • If you are married and you file a joint return, you can generally claim one exemption for yourself and one for your spouse.
  • If you are married and you file a separate return, you can generally claim one exemption for yourself but you cannot always claim your spouse. You can claim an exemption for your spouse only if he or she had no gross income, is not filing a return, and was not the dependent of another taxpayer.
  • If your spouse died during the year and you file a joint return, you can generally claim one exemption for yourself and one for your deceased spouse. However, if you remarry during the year, you cannot take an exemption for your deceased spouse (some exceptions apply).
  • If you were divorced or separated during the year, you can generally claim one exemption for yourself but you cannot claim your former spouse’s exemption. This is true even if you provided all of your former spouse’s support during the year.

You can claim one personal exemption for each of your dependents. This is true even if your dependent files his or her own return. However, as above, if you can claim an exemption for your dependent, the dependent cannot claim his or her own personal exemption on his or her own tax return. This is true even if you do not claim the dependent’s exemption on your return (this is where a lot of students get into trouble).

If you don’t include your dependent’s Social Security number on the return or if you use the wrong number, the personal exemption may be disallowed. Nowadays, almost all babies born in hospitals are assigned Social Security numbers pretty quickly. If you don’t have one for your dependent born in 2013, you’ll want to apply for one (use form SS-5, downloads as a pdf) and likely file for an extension for your taxes.

You figure your personal exemption amount on line 42 of your form 1040. That amount, however, is based on the number of exemptions you claim on the front of your return.

Personal exemptions do have limits and those limits are based on your income. You lose part of the benefit of your personal exemptions once your adjusted gross income reaches a certain amount – this is referred to as the personal exemption phaseout, or PEP. For 2013, those phaseouts begin at $250,000 for individual taxpayers; $275,000 for taxpayers filing as head of household; $300,000 for married taxpayers filing jointly or qualifying widow(er); and $150,000 for married taxpayers filing separate. PEP reduces the total personal exemption by 2% by those taxpayers over those amounts. This means that taxpayers completely lose the benefit of personal exemptions at $372,500 for individual taxpayers and $422,500 for married taxpayers filing jointly.

For more in the series, see:

Want more taxgirl goodness? Pick your poison: receive posts by email, follow me on twitter (@taxgirl), hang out with me on Facebook or check out my YouTube channel. If you want to keep an eye on documents I’ve posted, check out my profile on Scribd. And finally, you can subscribe to my podcast on the site or via iTunes (it’s free).

Source: Forbes Business

 
Update
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7 weeks ago

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Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

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Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
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7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

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