Exemptions (usually) reduce your taxesApr 13, 2002 Write an essay on this topic.
The Bottom Line Exemptions (usually) reduce your taxable income, and therefore your taxes.
Understanding this review requires understanding just who is a dependent. See my review at http://www.epinions.com/content_2607849604 for more information.
Who qualifies you for an exemption?
1. Yourself, if you cannot be taken as a dependent on another taxpayer's return. (Note: The instructions note that if you file a joint return, you ARE entitled to the exemption. However, if you file a joint return, then, under rule 3 for dependencies, then you cannot be taken as a dependent unless no tax would be due on your or your spouse's return even if you were filing separately. This would means there is also no tax due on the joint return, so, it doesn't matter whether you claim the exemption.)
2. Your spouse, either on a joint return, or on a separate return if your spouse has no income and cannot be claimed as a dependent on another taxpayer's return.
3. A dependent.
What does it get you?
A reduction of taxable income of $2900 (for 2001) for each dependent, provided you are not rich (as defined in the tax code). You are rich (for 2001) if your Adjusted Gross Income (AGI) exceeds $99,725 if your filing status is Married filing separately, $132,950 if single, $166,200 if Head of Household, and $199,450 if Married filing jointly or Qualifying widow(er). If you are rich, your reduction is reduced over the next $122,500 of AGI.
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