Tax Exemptions

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The amount you can deduct for each exemption has increased to $3,400 for 2007.

You lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount.

The amount at which the phase out begins depends on your filing status. For 2007, the phase out begins at:

• $117,300 for married persons filing separately,
• $156,400 for single individuals,
• $195,500 for heads of household, and
• $234,600 for married persons filing jointly or qualifying widow(er)s.

If you file a return, you generally can claim an exemption for yourself, and if you're married, one for your spouse. But you can't claim your exemption if you're the dependent of another person, even if that person doesn't claim an exemption for you.

There are 2 types of dependents: qualifying children and qualifying relatives.

Whether the person you want to claim as a dependent is a qualifying child or qualifying relative, that person generally cannot file a joint return and that person generally must be a U.S. citizen or resident. See IRS Publication 17 for exceptions.

See IRS Publication 501 for details about these rules, including exceptions that apply.

Before you report your income, the IRS asks you to list your personal exemptions. It's important not to skip this step -- exemptions reduce your taxable income.

The personal income exemption amount is $3,650. That's per person, not per family. That amount applies so long as your adjusted gross income (AGI) falls under the phase-out amount. Phase-outs begin at $125,100 for taxpayers filing as married filing separately, $166,800 for taxpayers filing as single, $208,500 for taxpayers filing as head of household and $250,200 for taxpayers filing as married, filing jointly.

You are generally allowed one exemption for yourself if you cannot be claimed as a dependent on any other taxpayer's return.

For married filing a joint return, you can claim one exemption for your spouse, even though a spouse is not considered your dependent. If you are married filing a separate return or as head of household, you can claim an exemption for your spouse if your spouse had no gross income, is not filing a return and cannot be considered the dependent of another taxpayer.

One exemption is allowed for each person you can claim as a dependent, even if your dependent files his or her own return. A dependent is either a qualifying child or a qualifying relative.

To actually claim a dependent as a personal exemption on your return, you'll need to provide the person's name, Social Security number and relationship. If you're using preparation software or a professional to prepare your return, you may need to provide the birth dates of your dependents.

A family of five could qualify for up to $18,250 in personal exemptions -- that doesn't even include related deductions and credits. Be sure you understand the rules for claiming personal exemptions and don't pay more in taxes than you have to.

Back in the 1950’s, American families paid an average of 3% personal income taxes per year. It may not have seemed as important to maintain control of that money as it does now; for the average family taxes are up to 30%, making it an absolute necessity to keep track of this large price tag we are paying to support our country, even as wonderful as it is. And, whether you've noticed or not, laws change every year so you’ll need to keep informed and adjust your W-4 exemptions as needed.

You do not have to hire an accountant to file your taxes (though many people do and that's okay!), the forms are really not that difficult to figure out--each one comes with detailed instructions--but they can be a little time consuming. Though once you’ve done them a few times they will become somewhat like second nature.

Now by claiming these, you'll be getting the money back on your paycheck where it belongs, you can either add it to your monthly budget if you need it to live on, or set up an automatic savings account through your bank.

By having the money taken automatically from your paycheck and deposited to your savings account, the money will still be going straight into your savings before you even see it, this way you will be earning the interest on your money instead of the government. And not only will you be earning interest on your money, but you'll be earning interest on your interest!

Now that's Interesting, isn't it?