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Video instructions and help with filling out and completing Will Form 8815 Exempt

Instructions and Help about Will Form 8815 Exempt

Next come your exemptions each exemption you claim can lower your taxable income by about $2,500 and this amount increases each year with inflation note that exemptions have nothing to do with your deductions including the standard deduction it's true that both exemptions and deductions reduce your taxable income but they're different things put simply exemptions deal with the number of people living in your household while deductions deal with your lifestyle for example if you're over age 65 you still get only one exemption but if you're over age 65 you get a higher standard deduction same thing if you're blind one exemption but a higher standard deduction or suppose you live in a big house with a big mortgage this lifestyle leads to a big mortgage interest deduction but it doesn't affect the number of exemptions you can claim exemptions and deductions are different so determining the number of exemptions you can claim should be as easy as counting the number of warm bodies in your home unfortunately it's not that easy if you're not a dependent you can claim yourself as an exemption if you're married filing jointly you can claim your spouse your marital status is determined as of the last day of your filing year usually December 31st if you are married to someone on December 31st according to the IRS you are married to that person for the whole year when it comes to dependents however things get more difficult because each dependent you claim cuts your taxable income by about $2,500 a middle-class taxpayer in the 28 percent bracket cuts his total tax liability by about $700 for each dependent he claims so there's an incentive to claim as many dependents as possible I've even heard stories of people claiming their dogs as dependents to help prevent this the IRS requires you to give the social security number of each dependent you're claiming you should be careful that you and an ex-spouse both don't claim the same child because the matching Social Security numbers will trigger a letter from the IRS so now for the $700 question how do you determine if a person is your dependent or not the IRS has five tests that must be met the first is citizenship only residents of the US Canada or Mexico can be a dependent the second is gross income if the person made more than the exemption amount that is two thousand five hundred and fifty dollars in 1996 they can't be a dependent but and this is a big but this requirement is waived for children under age 19 and students under age 24 the gross income requirement usually affects elderly dependents if you're helping to support your mother and she receives five thousand dollars in interest income you can't claim her as a dependent the third test is the relationship test you normally can only claim a blood relative but there's an exception if a non-relative was in your home for the entire year you might be able to claim her the fourth test is the support test you must provide over half of the total support of a person to claim that person as a dependent there is a provision however for one person to claim the exemption even if several people provided support claiming the exemption for the children of divorced parents is tricky after 1984 Congress said that the parent who has custody of the child for the majority of the year can claim the exemption however this right can be waived with form 83 32 giving the right to the person with the higher income can lead to some tax arbitrage savings the fifth test states that a dependent may not file a joint return with someone else to summarize you almost always should be able to claim your children who are under 19 as your dependents with anything else say an elderly parent or a foster child you'll have to check the IRS instructions but if you are helping to support someone you should look into claiming them as a dependent because this could save you $700 in taxes.

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