Tax Exemptions

Exemptions have historically been used to reduce taxable income. The Tax Cuts and Jobs Act, however, eliminated tax exemptions. Instead, the law significantly increased the standard federal deduction with the start of the 2018 tax year.

Note that state exemptions are still applicable to businesses. Organizations that fulfill the requirements set by IRS can also be tax-exempt. 

Tax Exemptions: Tax Years Before 2018 

Before 2018, you could usually claim exemptions for yourself, your spouse, and each person you could claim as a dependent. But if you were entitled to claim an exemption for a dependent (such as your child), that dependent could not claim a personal exemption on their own tax return.

How to Claim Exemptions

How you claimed an exemption on your tax return depended on which form you filed:

Form 1040EZ. If you filed Form 1040EZ, the exemption amount was combined with the standard deduction and entered on line 5.

Form 1040A. If you filed Form 1040A, you claimed exemptions on lines 6a through 6d. The total number of exemptions you could claim was the total in the box on line 6d. You also needed to complete line 26 by multiplying the number in the box on line 6d by $3,200 (using the 2005 exemption amount). If your adjusted gross income was more than $109,475 (in 2005), this exemption could phase out.

Form 1040. If you filed Form 1040, you claimed exemptions on lines 6a through 6d. On line 42, you had to multiply the total exemptions shown in the box on line 6d by $3,200 and enter the result. If your adjusted gross income was more than $109,475, this exemption could phase out.

Personal Exemptions

You were generally allowed one exemption for yourself and, if you were married, one exemption for your spouse. These were called personal exemptions.

Your Own Exemption. You could take one exemption for yourself unless you could be claimed as a dependent by another taxpayer. If another taxpayer was entitled to claim you as a dependent, you could not take an exemption for yourself even if the other taxpayer did not actually claim you as a dependent.

Your Spouse's Exemption. Spouses were never considered dependents, but on a joint return, you could claim one exemption for yourself and one for your spouse. If you filed a separate return, you could claim the exemption for your spouse only if your spouse had no gross income, was not filing a return, and was not the dependent of another taxpayer. This was true even if the other taxpayer did not actually claim your spouse as a dependent. This was also true if your spouse was a nonresident alien. If you obtained a final decree of divorce or separate maintenance by the end of the year, you could not take your former spouse's exemption. This rule applied even if you provided all of your former spouse's support.

Exemptions for Dependents

People were allowed one exemption for each person they could claim as a dependent. You could claim an exemption for a dependent even if your dependent filed a return. A dependent was defined as a:

• Qualifying child (See IRS definition) or
• Qualifying relative (See IRS definition)

An overview of the rules for claiming an exemption for a dependent:

• You could not claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer.
• You could not claim a married person who filed a joint return as a dependent unless that joint return was only a claim for refund and there would be no tax liability for either spouse on separate returns.
• You could not claim a person as a dependent unless that person was a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico, for some part of the year.
• You could not claim a person as a dependent unless that person was your qualifying child or qualifying relative.

Contact an Attorney to Learn More About Taxes

Exemptions certainly came in handy during tax season; however, tax laws have changed. An experienced tax law attorney can help you prepare your taxes and ensure that you only pay what you owe under the law — and no more.