Tax benefits abound for families.
Through exemptions and credits for children and other dependents, deductions that can be taken for every member of a household, and other nuances in the tax code, the tax status of a family is at a significant advantage over the tax status of a single individual.
“Exemptions” are amounts deducted from your taxable income, apart from any expenses or other deductible activity. They are granted solely based on the status of the taxpayer, i.e. parent, person over age 65 or with physical disabilities, etc.
For 2007, there is a $3,400 exemption for each qualifying child, who lives in your home more than half the year and is under the age of 19, or is a full-time student and under the age of 24. These exemptions will increase to $3,500 in 2008.
Dependent exemptions may also be claimed for anyone who is:
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Either a relative or full time member of your household
- A citizen or legal resident of the United States
- Does not file a joint tax return
- You provide over half of his or her support; and
- The person earns less than $3,400 of income for the entire year
There are difficult questions that arise concerning the dependency of an individual, particularly around the question of whether a person is a “relative”. The following people are considered to be relatives:
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Children, grandchildren, or stepchildren
- Siblings, including half or step siblings
- Parents, grandparents, or any other direct ancestors
- Stepparents
- Aunts or uncles
- Nieces or nephews
- Fathers-in-law, mothers-in-law, sons-in-law, daughters-in-law, brothers-in-law, or sisters-in-law
Most important in all these rules is that the same person cannot be claimed as a dependent by more than one taxpayer, nor can a child who can be claimed as a dependent on his or her parents' return claim a personal exemption on his or her own return. You must include the person’s social security number on your return, if one exists so that the IRS can cross check and make sure the exemption is only taken on one return.
Are you missing out on deductions you deserve to claim? Use TurboTax Online to help identify over 350 tax credits and deductions available and which ones you are eligible for.
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