Some tax rules affect every person who may have to file a Federal income tax return. These rules include exemptions and dependents. Here are important facts the IRS wants you to know about exemptions and dependents that will help you file your 2017 tax return.
1. You and your spouse are considered personal exemptions. On a joint return, you may claim one exemption for yourself and one for your spouse. If your spouse died during the year and you file a joint return, you can still claim your spouse’s exemption. But, if you obtained a final decree of divorce or separate maintenance by the last day of the year, you cannot take your spouse’s exemption.
2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $4,050 on your 2017 tax return. For the 2017 tax-filing season, personal exemptions are subject to income phase-out limits. Single taxpayers whose adjusted gross income (AGI) exceeds $256,500 will lose a portion of their personal exemption amounts and at $384,000 will lose the entire exemption deduction. Married taxpayers filing jointly will begin the phase-out at the $313,800 threshold and lose the entire exemption at $436,300.
Taxpayers below these income thresholds will not be affected by the Personal Exemption Phase-out (PEP).
3. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption or your tax return will not be processed. Being able to claim a dependent on a tax return is tied to a number of related tax benefits. Taxpayers with dependents may be eligible to claim the child tax credit, the child-and-dependent-care credit, and the earned-income tax credit.
4. The IRS will always audit tax returns where two or more taxpayers attempt to claim the same dependent. Only one taxpayer will win. To protect yourself, you should make sure that you are eligible to claim the dependent.
5. Qualifying children, which may include your child or stepchild, foster child, sibling, or descendents of any of these, such as your grandchild, must live with you more than half the year and the child must be under 19 (under 24, if a full-time student) to be claimed as dependents.
6. Qualifying-relative rules are stricter and have income requirements. The relationship test is critical to being able to claim a qualifying relative. Some types of relationships have no residency requirements. Your parents don’t have to live with you, but other dependents have to live with you the entire year to be claimed. Domestic partners may fall under this category.
7. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned (interest and dividends), earned (wages) or gross income and your marital status.
8. If you are someone’s dependent, you may not claim a personal exemption on your individual tax return. A common mistake made by self-preparers.
9. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, national or resident of Canada or Mexico.
For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501, “Exemptions, Standard Deduction, and Filing Information.”
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or firstname.lastname@example.org.