Tax exemptions, simply put, are amounts of money that you can take off of your taxable income when you come to file your income taxes. They work similarly to tax deductions in that they reduce your taxable income for the year, meaning that you will pay less tax overall. For example, if you earn $20,000 in a year and have a tax exemption of $2,000 dollars, only $18,000 of your income is now taxable.
Even though tax exemptions work similarly to tax deductions, they are not the same thing, and they do not affect one another. Tax deductions can change in amount year by year, and depend largely on your lifestyle and circumstances. Tax exemptions, on the other hand, are set amounts that are regulated by the federal government, and go off the number of people living in your home.
You can receive tax exemptions for your dependents, assuming that you meet certain criteria. To claim your children as dependents, they must:
-Live with you for more than half of the tax year
-Not provide themselves with more than half of their financial support
-Must be under the age of 19, or under the age of 24 if they are a full-time student
Dependents don’t necessarily have to be your children, either. Anyone living with you for over half of the tax year can be claimed as a dependant, assuming that you provide them with significant financial support, and that they meet certain IRS requirements and criteria.
When claiming people as dependents, you have to provide their personal information such as their social security number in order to do so. This is to assure the IRS that the dependents you are claiming are real and not fictional, with people in the past often trying to claim for non-existent dependents in order to receive more tax exemptions than they were entitled to. Partners with children who have separated should not list the same child as a dependent on both of their separate tax returns. If the same social security number (from the same child) shows up on 2 different tax returns, you could both be subjected to an audit from the IRS. The parent who the child lives with most of the time is the only one who should claim the child as their dependent.
You can currently claim tax exemptions for your dependents, spouse, and yourself. These exemptions are currently worth $4,050 each. However, President Donald Trump signed new tax regulations into law for 2018, eliminating personal tax exemptions entirely. This is the case now for both single filers and joint filers, and applies to your dependents too. Deductions and tax credits will still exist nonetheless, and have been raised to compensate for some of this loss, so be sure to see whether you’re eligible. However, larger families are sure to feel the pinch of the elimination of personal tax exemptions in 2018 and onwards.