Understanding the tax laws isn’t always an easy task. However, there are certain parts of the tax code that are relatively straightforward and simple to comprehend – for tax code that is. Exemptions are one of the few great parts of filing your taxes, because they help taxpayers get back more of their hard earned cash.

Exemptions are like deductions in that they lower the amount of your income that is subject to taxes. This tax year, each exemption can reduce your gross income by $4,000 which is then used to calculate your taxable income. Taxpayers in the 25% bracket can save up to $1,000 in taxes.

There are three types of exemptions that you can take:

1. Personal exemption (Yourself)
2. Your Spouse
3. Each Dependent

Example: A married taxpayer with two children can deduct $16,000 in exemptions ($4,000 per qualifying person).

Examples are fairly easy to fill out on a paper form, and even easier if you e-file, as the software will calculate your exemptions for you. There are exceptions to every rule of course, so be sure you qualify for an exemption before claiming one. Also, remember that you’ll be required to report the Social Security Number for any person you claim as a dependent when you file your return.

Personal Exemption

Basically, if you pay taxes, you’re entitled to a personal exemption. To the government, this exemption is the equivalent of the “free space” on a bingo card.

Fine Print: If you qualify to be claimed as a dependent on anyone else’s tax return, you are not eligible for a personal exemption. The other person doesn’t even have to claim you – it’s essentially just the idea that they can claim you as a dependent that inhibits your ability to take a personal exemption. Check out the criteria for qualifying dependents to determine if you fall under that category for anyone else. A good rule of thumb is if anyone else supports you, you are likely a dependent.

Spousal Exemptions

The government doesn’t classify your spouse as a dependent, although the same restrictions apply when claiming an exemption for your spouse. You can take a spousal exemption when you file a joint return.

Fine Print: If you file separately from your spouse, you will only be able to claim the exemption if your spouse meets the following conditions:

• He/she has no gross income for the tax year
• He/she is not filing a tax return
• He/she cannot be claimed as a dependent by another taxpayer

Dependent Exemptions­­­

Children under age 19 who live in your household can likely be claimed as a dependent, and therefore you are able to take an exemption for each. Children who are permanently and completely disabled throughout the tax year are always eligible to be claimed as dependents, no matter how old they are.

For children to be considered dependents, they must be either:

• Your son, daughter, grandchild, stepchild, or a foster child
• Your brother, sister, half-sibling, step-sibling, or a neice or nephew or some other descendant

Fine Print: Your child actually needs to be dependent on you in order to claim them. You aren’t able to claim a dependent if:

• You are claimed as a dependent on another’s tax return
• Your child files a joint tax return with their spouse – unless they file only for a refund and do not claim their own personal exemption
• The dependent is not a resident of the U.S., Canada, or Mexico
• Your child is older than 19 and not considered a full-time student
• Your child is older than 24 at the end of the year
• You did not provide more than half of the support for the dependent
• The dependent didn’t live in your house for half of the year at least (exceptions are made in cases of military service, illness, education, business, birth, or death)
• You are separated/divorced, and the child lives with the other parent more often

Qualifying Relatives

You may be able to claim a dependent exemption for other relatives beside just your children. A “qualifying relative” may also be considered as a dependent, as long as you are supporting them. There is no age requirement, or living requirements.

Fine Print: Qualifying relatives must meet the following criteria:

• Be a U.S. citizen, or a resident of Canada or Mexico
• Not file a joint return with a spouse
• Have earned less than $4,000 in gross income, including unemployment benefits for the tax year
• Receive over half of their support from you, whether through shelter, clothing, medical costs, education expenses, transportation, and recreation. You can determine your percentage of the relative’s support by adding all their help through the tax year, including state support like welfare and food stamps, and comparing it to the total amount you contributed.

Some examples of qualifying relatives may be a parent, sibling, stepparent, step-sibling, half-sibling, grandparent, grandchild, or in-laws.

Fine Print: Cousins are not qualifying relatives. Other relatives, such as aunts, uncles, nieces and nephews, are only qualifying if related through blood. So your sister’s daughter would count, but your wife’s sister’s daughter would not, if you try to claim her. However, if you file a joint return with your wife, you are able to claim her sister’s daughter.

Member of Household

So you’ve been supporting your best friend, or your boyfriend’s kid for the last tax year. That means they may qualify to be claimed as a dependent, as long as they lived with you all year long and meet the same requirements that a qualifying relative must meet:

• Be a U.S. citizen, or a resident of Canada or Mexico
• Not file a joint return with a spouse
• Have earned less than $4,000 in gross income, including unemployment benefits for the tax year
• Receive over half of their support from you, whether through shelter, clothing, medical costs, education expenses, transportation, and recreation.