2011 personal exemptions can help you get unclaimed IRS money
With the 2012 tax season less than two months away now is the time to brush up on your tax knowledge. One of the most fundamental things you should know about when filing your return is how to claim income tax exemptions.
An income tax exemption allows you to deduct a certain amount of money from your Adjusted Gross Income, thus reducing the total amount of money on which you must pay taxes. Let’s put it this way: income tax exemptions save you money.
And, as it turns out, the federal government holds on to millions of dollars in unclaimed deductions every year. So it’s important to claim every deduction that applies to you in order to keep all of the money you’re entitled to.
Personal income tax exemptions were designed so that the minimal amount of money it takes to get by at the subsistence level would be excused from taxation. For each additional person in your family you earn an additional exemption. So, a household consisting of two adults and two kids gets four exemptions.
In 2011, for example, the value of each personal and dependent exemption is $3,700, a $50 increase over the previous year. In theory, this means that $3,700 is the bare minimum you would need to survive. In practice, this means that for each exemption you can deduct $3,700 from your Adjusted Gross Income.
To recap, you are allowed one personal exemption for yourself and, if you are married, one personal exemption for your spouse as well, provided that she is not claimed as a dependent on someone else’s return such as, say, her mum and dad’s.
By the same token if you yourself are claimed as a dependent on another taxpayer’s return, then you cannot claim your own personal exemption.
As mentioned, you are also allowed an additional exemption for each dependent you claim. In order to qualify as your dependent, a person must
- Be your child, stepchild, foster child, brother, sister, or a descendant of one of the them
- Be under 19 years of age, or 24 if a full-time student
- Have lived with you for at least half of the past year
- Have received more than half of their support from you
Note that If you and your spouse decide to file separate returns, you can claim your spouse as an exemption only if he or she did not earn any income. The same applies if you file as head of household. Also, if you suffered the death of your spouse over the past year, you can still claim them as an exemption on your 2011 taxes.
Until recently personal exemptions used to phase out at a certain level of income (in 2009 the phaseout began for a single person at $166,800 and ended at $289,300, just to give you an idea). But for 2010, 2011, and 2012, those phaseout limits were eliminated, though they are set to return in 2013.
Income tax exemptions make a huge difference. For one, they can mean that you pay no tax at all on money you earned. Many Americans who did not earn enough in 2011 will pay no federal income tax at all. In fact approximately 76 million filers will find themselves completely exempt from taxes on their income. That’s roughly a third of all tax filers each year!