Different Exemptions and the Standard DeductionThere are two kinds of exemptions, personal exemptions and dependency exemptions.
If a person cannot be claimed as a dependent of another, then that person can claim a personal exemption on their tax return. Also, for a married couple filing jointly, if neither spouse can be claimed as a dependent of another taxpayer, then the couple can claim two exemptions on their tax return.
If a married couple is filing separately, then one spouse may claim an exemption for the other spouse if no one else can claim that spouse, the spouse had no income for the year, and is not filing a tax return.
For 2015, exemptions reduce the income that can be taxed by $4,000 per instance of exemption. Spouses as never consider a dependent of each other.
Dependent exemptions are for qualifying children or qualifying relatives and are subject to tests to determine qualification. These tests include the Dependent Taxpayer test, Joint Return test, Citizenship test, Relationship test, Age test, Residency test, and Support test.
Taxpayers can either choose to take an itemized deduction, adjusting taxable income by deducting the amounts of certain expenses paid during the tax year, or a Standard Deduction. The Standard Deduction is determined from a taxpayer's filing status, age, dependency status, and whether the taxpayer is blind or not.
If the taxpayer or spouse is age 65 or older and blind, the Standard Deduction will increase. Being a dependent of another taxpayer will cause the Standard Deduction to be reduced.
Taxpayers can opt to use the itemized deduction for their federal tax returns in lieu of the Standard Deduction if the total allowable deductions are greater than the Standard Deduction. Schedule A of Form 1040 is where the taxpayer will calculate the itemized deduction according to the allowable expenses listed.
The allowable expenses that can be included in the itemized deduction are as follows:
- Medical and dental expenses that have not been reimbursed and are not covered by another form of tax benefit arrangement. See IRS Publication 502 to determine which medical and dental expenses are deductible.
- Some taxes, like property taxes, state and local income taxes, or taxes paid to another country.
- Interest paid on a mortgage for a taxpayer's first or second home.
- Charitable contributions of cash or property made to a qualified organizations as defined by the IRS. Search here to see if an organization qualifies.
- Losses stemming from either casualty or theft.
- Unreimbursed employee expenses as defined by the IRS in Publication 529.
- Certain miscellaneous expenses as defined by the IRS in Publication 529.