October 3, 2008, Newsletter Issue #136: What is an Exemption?

Tip of the Week

An exemption is an amount given to you by the IRS to help ease your tax burden. It is a deduction you are entitled to take. The IRS changes the figure yearly due to inflation adjustments. For the year 2006, each taxpayer is given an exemption of $3,300.

You can claim an exemption for yourself. You also may claim an exemption for any qualifying dependents, generally. There is a separate section on Form 1040 and 1040A for your exemption amount. If you file Form 1040EZ, your exemption is automatically included in your standard deduction amount.

If you claim an exemption for a dependent, that dependent cannot also claim an exemption for themselves on their own income tax return.

Exemption phase-out for 2006 tax year. However, there is an exemption phase-out if your adjusted gross income is more than $112,875 (and you file married separately) in 2006. Also, for single taxpayers the exemption is phased out at $150,500, HOH is $188,150, and married jointly have a phase-out at $225,750 for 2006.

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