These Personal Exemptions Can Save You A Lot Of Money On Your Taxes

When you look through tax laws that save taxpayers money, you’ll find that many of them are aimed at people with high-enough incomes to take advantage of them. With one tax provision, however, ordinary Americans can get write-offs worth thousands of dollars, while the rich aren’t eligible to deduct anything at all from their taxable incomes. Let’s look more closely at one of the simplest tax breaks available on your tax return to find out who benefits the most — and who gets left out in the cold.

Personal exemptions and you
The personal exemption is just about the easiest provision to understand in the tax laws. Each year, you’re allowed to claim a personal exemption for yourself as well as any dependents that you have. The value of that personal exemption varies from year to year, indexed for inflation. For 2015, each personal exemption you have lets you subtract $4,000 from your taxable income.

To take full advantage of personal exemptions, you have to know how the tax laws define a dependent. Most dependents are children of the taxpayer in question, under age 19 at the end of the year or a student under age 24 or disabled. The child must live with you for more than half the year, with exceptions for attending college, and the child must not provide more than half of his or her financial support during the year.

However, dependents need not be children of the taxpayer. Parents, grandparents, or others who live with you all year, who have minimal income of less than $4,000, and for whom you provide more than half the financial support for the year can also qualify as dependents.

In order to claim a personal exemption for yourself, you must not be the dependent of another taxpayer. For instance, many children who file their own tax returns don’t get to take a personal exemption because their parents take it instead.

All in all, almost 137 million taxpayers claim personal exemptions on their tax returns, and the total amount they wrote off their taxes during the most recent year for which data is available was a whopping $1.11 trillion. That works out to $8,094 per taxpayer, showing that the typical tax return claims more than two personal exemptions on average.

Why the rich don’t get personal exemptions
Personal exemptions aren’t available to everyone. In particular, the amount that you’re allowed to claim for personal exemptions gets phased out for those with incomes above a certain threshold.

Specifically, for 2015, you can see the threshold amounts for various filing statuses below.

tzesThe Motley Fool

How the phaseout works is a little complicated. For those other than married filing separately, you lose 2% of your total personal exemption for every $2,500 your income is above the threshold. Portions of $2,500 force you to round up, which means you’ll lose more. For example, a single person whose income is $258,350 loses 2% of their personal exemptions even though they’re only $100 above the threshold.

Notice that the phaseout takes away the same percentage of your exemptions no matter how many of them you claim. This costs those with large families more than those with smaller ones, because the total exemptions that a large family claims will typically be higher.

Don’t miss out
Given how high those income levels are, though, it’s not surprising to find that the vast majority of those filing returns are able to claim their portion of what on average is a more than $8,000 tax break for American taxpayers. The ability to reduce your taxable income that much is definitely worth making sure you get right.

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  • JohnDille

    YEAH… IT MUST BE A REAL BUMMER WHEN THE TOP 10 OR 11% OF THE POPULATION EARNS MORE THAN THE OTHER 89 OR 90% OF THE POPULATION… SO THOSE EVIL DEMOCRATS MAKE YOU PAY MOST OF THE TAXES… IN ORDER FOR THE GOVERNMENT TO COVER THE COSTS OF THE INFRASTRUCTURE NEEDED TO HELP THE WEALTHY BE SUCCESSFUL! WHY CAN’T AMERICA BE LIKE MOST CONSERVATIVE… RIGHT WING… 3RD WORLD COUNTRIES, WHERE THE RICH JUST STEAL WHATEVER THEY WANT… AND THROW ANYONE WHO OBJECTS INTO PRISON… TO BE TORTURED AND MURDERED… OR LEFT TO ROT???

  • TAXED TO DEATH

    So what you are saying is that there are no rich Democrats? No Democrats who take advantage and who go along with the Politics to make it look like they are fighting it also. Where else can you use insider information and not go to jail? Congress! Where else do you not have to live by the laws and rules you pass? Congress! Where else can you lie, totally screw things up, destroy the economy and pass laws that take away individual freedoms and yet vote yourself a pay raise? Congress! Maybe it’s time we look at career politicians and political hacks and throw them out and replace them with Statesmen who won’t pass the buck to the next generation. The free lunch ride should be over but we just follow blindly behind the Democrat and Republican banners.
    Better yet, let’s make every American worker pay his own FICA tax, FUTA tax, Workers Comp, State Unemployment and every other tax that they have robbed from their paycheck. Companies bear that accounting burden now and why, so the average poor dumb slob doesn’t know just how badly he is being robber. I’m sure there would be a greater outcry than blaming the rich.

  • Joe Cabot

    To be fair, the poor do have the advantage of being in a lower tax bracket and if one is poor enough their tax rate is zero. No matter which dastardly schemes those evil rich folks use, it is almost impossible for them to get to a 0% rate.

  • JohnDille

    WHILE THE INFORMATION GIVEN IS TRUE… AND IS VERY USEFUL TO THE AVERAGE PERSON… THIS VERSION OF THIS ISSUE DELIBERATELY HIDES A MUCH BIGGER TRUTH…. THAT THE RICH HAVE ALL KINDS OF WAYS TO DODGE TAXES THAT ORDINARY PEOPLE DO NOT HAVE ACCESS TO. IN FACT… THE AUTHOR OF THE STORY ABOVE COMES RIGHT OUT AND POOR MOUTHS THE RICH… POOR RICH PEOPLE CANT USE THESE BASIC PERSONAL EXEMPTIONS. HE NEVER ONCE MENTIONS THAT BARELY HALF OF ALL PERSONAL INCOME IS EVEN SUBJECT TO FEDERAL INCOME TAXES… AT ALL… AND MUCH OF THAT EXEMPT INCOME IS “”””EARNED””” BY THE TOP 1%!!! THAT IS THE REAL PROBLEM WITH OUR POLITICAL SYSTEM…. REPUBLICANS REFUSE TO BE HONEST ABOUT HOW AND WHY THEY HAVE RIGGED THE ENTIRE SYSTEM…. AND DEMOCRATS CANNOT POSSIBLY GET ELECTED IF THEY TALK ABOUT SUCH ISSUES…. BECAUSE RICH REPUBLICANS WOULD TOTALLY DESTROY THEM BY SPENDING HUGE AMOUNTS OF POLITICAL CAMPAIGN MONEY TO DEFEAT SUCH DEMOCRATIC CANDIDATES, AND TO FILL THE AIRWAVES WITH RIGHT WING REPUBLICAN LIES AND TOTAL BALONEY!