What Are Tax Exemptions, and Which Can You Still Claim? – Grand Island Independent




What Are Tax Exemptions, and Which Can You Still Claim?

Tax exemptions can work wonders for your return, giving you the opportunity to pay less tax and stash away more cash. But if you didn’t take advantage of personal and dependent tax exemptions before the implementation of the Tax Cuts and Jobs Act of 2017, you can very likely forget about them, at least until 2025. They’re only available to those who still need to file or amend a 2017 tax return by April 15, 2021 (or Oct. 15, 2021, if an extension was granted).

Here’s what to keep in mind as you maneuver through the tax filing process and recall the days when tax exemptions were a big deal. Even if you don’t qualify for the normal tax exemptions, there are still ways to reduce your tax bill.

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How tax exemptions work

Simply put, a tax exemption gives you access to tax-free income. For every tax exemption you claim, you reduce your taxable income.

In 2017, there were both personal and dependent tax exemptions worth $4,050 for every eligible person that could be claimed. Let’s say you earned $50,000 and were eligible for $8,100 in tax exemptions. The exemption amount would be excluded from your taxable income in addition to the standard or itemized deductions that you qualified for. Basically, this exemption gave you the coveted skip-taxes pass, lowering the amount of income you had to pay taxes on.

Under the new law, personal exemptions were snatched away in favor of bigger standard deductions ($12,550 for individuals and $25,100 for married couples in 2021). Beginning with the 2018 tax year, personal and dependent exemptions no longer existed, but you’ll see standard deductions that are nearly double the amount they were before.

Personal exemptions

Personal exemptions are pretty straightforward and can be claimed on Form 1040, 1040A, or 1040EZ. For 2017 tax returns, you can generally claim one for yourself if you’re not classified as a dependent on anyone else’s tax return. You can also claim an exemption for your spouse if you are married filing jointly. That means you’ll claim a $4,050 exemption for yourself and a combined personal exemption of $8,100 if you file as a married couple.

If you make too much money, the amount of your personal exemption will be reduced. For the 2017 tax year, the personal-exemption phaseout begins if your adjusted gross income is over $261,500 (for single filers) or $313,300 (for married couples filing jointly). The exemption completely disappears for singles who earn $384,000 or more and joint filers who earn $436,300 or higher.

Dependent exemptions

If you have kids or other dependents in your household, you may qualify for dependent exemptions as long as all the rules are met. Each dependent you add gives you another $4,050 to remove from taxable income. Note: Your spouse can never be classified as your dependent and you can’t claim a dependent if you are deemed to be a dependent on someone else’s return.

One of the main criteria you need to meet is to ensure that your dependent is considered a qualifying child or qualifying relative. This can include a niece or nephew who lives with you. When you’re ready to claim dependent tax exemptions, go to Form 1040A or 1040.

Last chance to qualify

The IRS gives you a three-year grace period to file your tax returns, making this the last year you can file for 2017. If you realized you missed out on claiming exemptions for periods prior to 2017, you’re too late.

Although you can no longer enjoy the personal exemptions for tax years from 2018 to 2025, there is still a suite of other benefits that can help reduce taxable income, including deductions and tax credits. It always makes sense to look for ways to cut your tax bill when you can.

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