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Taxes are the inevitable drain of your yearly earnings to Uncle Sam — but understanding the different aspects of taxes will save you a ton at tax time, if you prepare. With tax season drawing ever-near, the window is slowly closing and your chances to save along with it. After you have established your deductions and adjustments to your income you have one last chance to save; personal exemptions. It’s one of your last opportunities to further decrease your taxable income before you determine your tax. Personal exemptions for parents can greatly impact the life of your family, especially ones in or nearing college.
If you are confused about how personal exemptions for parents work, or personal exemptions in general, keep reading. This article will shed light onto the different aspects of personal exemptions and filing for the 2014 tax year.
2014 Increase in personal exemption
When first looking this up I have to say the IRS breakdown was daunting. The simplified version: you are generally allowed one exemption for yourself, and one exemption for a dependent when applicable. For the 2014 tax year the personal exemption amount is $3,950, a $50 increase from the prior year. The “when applicable” aspect is the part that impacts personal exemptions for parents the most. There are different circumstances that determine who can be considered a dependent when filing personal exemptions.
Personal exemptions for parents: What’s applicable
The biggest challenge to understanding personal exemptions for parents is answering the question, who is considered a dependent? The term dependent refers to a qualifying child or qualifying relative. You are given one exemption for every dependent. You can claim an exemption for a dependent even if your dependent files a return.
For your child to qualify, they need to meet the following 5 requirements:
- Relationship
- Age
- Residency
- Support
- Joint Return
To pass the relationship requirements, and get personal exemptions for parents, the child must be your son, daughter, stepchild, foster child, or a descendent of any of them (grandchild). The relationship can also be your brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them (niece or nephew). Adopted children are always treated as your own child, this also incorporates a child who was lawfully placed with you for legal adoption.
For a child to meet the age requirements, and get personal exemptions for parents, the child must be under 19 at the end of the year and younger than you. If you are filing jointly with a spouse then the child must be younger than one of you. If the child is a student they must be under the age of 24 at the end of the year and younger than you (or your spouse if filing jointly). Or, to be considered a dependent child regardless of age the child must be permanently and totally disabled at any time during the year.
The most difficult aspect, the one that most lose money on is understanding what defines a student. You are given a longer time period to qualify a student as a dependent but there are stipulations. The child must be a full-time student at a school with regular teaching staff, course of study and a regularly enrolled student body at school — or– must be a student taking a full-time, on-farm training course given by a school. With either of these options the student must be enrolled during any 5 calendar months of the year. Although the 5 calendar months do not need to be consecutive, the number of hours or courses must indicate full-time attendance.
For a child to pass the residency requirements and be claimed as a dependent and personal exemption for parents, the child must have lived with you for more than half the year. There are exceptions for temporary absences that include: illness, education, business, vacation or military service. This greatly impacts which parent gets to claim the child at during a divorce.
For help determining whether or not you qualify in regards to the support requirements download the link below.
To meet the joint return requirements and qualify a child as a personal exemption for parents, the child cannot file a joint return for the same year. The one exception to the joint return requirements is if your child and his or her spouse file a joint return only to claim a refund of income tax or estimated tax paid.
