Posted By: Dr. Frugal in Taxes on 08/04/2007 at 13:46:35
An exemption is a gift from the IRS: a fixed amount you get to deduct from your taxable income for yourself, your spouse and each eligible depend you can claim on your income tax return. In 2002, each exemption was worth $3,000, so if you're married but have no kids you can claim $6,000 if you go ahead and file jointly. The exemption phases out at a certain point but unless you're single with an income above $137,000 you'll be able to take the full deduction. You have to pass five tests for each dependent in order to claim them on your tax return.
This test is available in Section III, Part I of Publication 17. Here's a link to a PDF of that document from the IRS website: Publication 17 [PDF]
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