Video: What Are Tax Exemptions?
Tax exemptions work like a deduction and reduce your taxable income each year. Learn about tax exemptions with help from TurboTax in this video clip.
Tax exemptions apply to tax years prior to 2018. Beginning in 2018, eligible dependents can provide a tax credit rather than an exemption deduction on your tax return.
Video transcript:
Hello, I'm Jeremy from TurboTax with some information about claiming exemptions on your income tax return.
When you fill out your federal income tax return each year, you've probably noticed that you can claim an exemption for yourself and for each of your dependents. These exemptions work just like a deduction in that they reduce your taxable income which ultimately reduces the amount of tax you must pay.
But unlike your other deductions that may vary in dollar amount each year, the government determines the amount you can claim for an exemption and it is not subject to any change based on your personal circumstances. Essentially it's all or nothing. Although you don't calculate the exemption amount, you do have to ensure that you meet the requirements to claim each one.
When it comes to claiming dependents, there are certain tests you must satisfy.
- To claim your children, they must live with you for more than half the tax year, must not provide more than half of their own support and be under the age of 19 or under the age of 24 if a full time student.
- But your children are not the only ones who can qualify as your dependent. You can claim virtually anyone if you provide that person with significant financial support and satisfy other IRS requirements.
And don't forget your own exemption. As long as no other tax payer can claim you as their dependent, then go ahead and claim one for yourself. TurboTax will guide you through claiming exemptions. All you need to do is answer some basic questions about your dependents, and we'll do the rest.
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