Tax Tips on Dependents and Exemptions

Even though every tax return is different, some tax rules affect every person who may have to file a federal income tax return. These rules include those covering dependents and exemptions. The IRS has issued important facts about dependents and exemptions, and reminds parents of the tax benefits for children.

Exemptions reduce your taxable income.<

There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,700 on your 2011 tax return.

Your spouse is never considered your dependent.<

On a joint return, you may claim one exemption for yourself and one for your spouse. If you're filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

Exemptions for dependents.<

You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.

If someone else claims you as a dependent, you may still be required to file your own tax return.<

Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.

If you are a dependent, you may not claim an exemption.<

If someone else - such as your parent - claims you as a dependent, you may not claim your personal exemption on your own tax return.

Some people cannot be claimed as your dependent.<

Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

Your children may help you qualify for some valuable tax benefits. Here are 10 things the IRS wants parents to consider when filing their taxes.

Dependents <

In most cases, a child can be claimed as a dependent in the year they were born.

Child Tax Credit<

You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit.

Child and Dependent Care Credit<

You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work.

Earned Income Tax Credit<

The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund.

Adoption Credit<

You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.

Children with earned income<

If your child has income earned from working, they may be required to file a tax return.

Children with investment income<

Under certain circumstances a child's investment income may be taxed at their parent's tax rate.

Higher education credits<

Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar.

Student loan interest<

You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions.

Self-employed health insurance deduction<

If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent.

For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, please call our office. We will be happy to answer your questions.