What is the difference between a Dependent and an Exemption?
Dependent and exemption are related tax terms, but each means something a little different.
Think of a dependent as a person. Only a person can be a dependent.
Think of an exemption as an amount of money you get to subtract from your income before calculating your taxes. For 2012, that amount is $3,800. You get to deduct $3,800 for each exemption on your return before calculating your taxes.
Think that each person or couple filing a tax return always gets an exemption for themselves. So a single individual filing as a Single taxpayer will always get one exemption worth $3,800, while a couple filing as a Married Filing Jointly taxpayer will always get two exemptions worth $7,600. Note that there are no dependents under either of these last two examples.
Now, picture the couple filing Married Filing Jointly, but also having two children. First, they will as always get two exemptions for themselves worth $7,600. In addition, if the two children qualify as their dependents, then they will also be entitled to the exemptions for the two children, worth another $7,600, for a total subtraction of $15,200 on their return.
To summarize, all tax return filers (the people who are required to sign the return!) are entitled to a $3,800 exemption on their 2012 tax return for each filer. In addition, all tax return filers are entitled to another $3,800 exemption on their 2012 tax return for each dependent.
Determining the amount of exemptions the tax return filers are entitled to has always been easy. TurboTax now makes it just as easy to determine how many additional exemptions you are entitled to for your dependents. Just carefully walk through the step-by-step interview for dependents, and you can rest assured you are claiming the correct amount of exemptions on your return!