Exemptions and the Dependency Test
In computing how much of your income is actually subject to
federal income tax, you're automatically entitled to subtract two
amounts: a personal exemption, and a standard deduction. The sum
of these amounts is not taxed, period. Of course, you can choose
to itemize your deductions rather than
claiming the standard deduction, if itemizing would result in a lower
tax bill. The remainder of this section explains personal exemptions
and how to determine whether a particular person is your dependent
or not.
The rule is that one (and only one) personal exemption
is available for every individual - adult or child. The amount of
the exemption is $3,950 for 2014 ($4,000 for 2015). This amount is
indexed for inflation every year.
However, higher-income taxpayers
may have their personal exemption amounts phased
out if their adjusted gross income exceeds certain thresholds.
Under these circumstances, it may be beneficial to reverse plan for the exemption.
The
inflation-adjusted threshold amounts for 2014 are $254,200 for unmarried
taxpayers, $305,050 for married filing jointly and surviving spouses;
$279,650 for heads of households; and $152,525 for married filing
separately.
Under the phase-out, the total amount (combined
personal and dependent exemptions) will be reduced by two percent
for each $2,500 (or any portion of $2,500) that your adjusted gross
income exceeds the applicable threshold. If you are married, but
file a separate return, $1,250 is substituted for $2,500 in determining
the phaseout.
On a joint return, you could automatically claim
one exemption for yourself and one for your spouse, for a total of
$7,900. You can claim an exemption for your spouse even if he or
she died during the year, provided you have not remarried. (If you
are married filing separately, you can claim your spouse's exemption
on your own return only if your spouse had absolutely no gross income
for the year and was not the dependent of any other individual.)
Besides
the personal and spousal exemptions, you should also claim an exemption
for each of your dependents. The catch is that if you can claim a
dependency exemption for an individual, that person may not claim
a personal exemption on his or her tax return.
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Warning There is nothing optional about this
rule. If you are eligible to claim, say, an exemption for your child
who is away at college, you cannot choose to let the child claim his
or her own exemption even if you want to. One possible way
around this rule is to make a hefty gift to the child in one year,
and then refrain from paying more than half of the child's support
in later years. The child could use the gift money to support himself
or herself and could then claim the personal exemption on his or her
own return. |
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Dependency exemptions have their own set of rules, including:
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