Exemption
Candlefocus EditorUntil the end of 2025, personal exemptions have been repealed and replaced by higher standard deductions. As a result, those claiming federal tax exemptions may not be able to do so. This means that taxpayers may only be able to use the increased standard deduction to reduce the amount of their taxable income.
In addition to personal exemptions, there are various other types of exemptions that taxpayers may qualify for depending on their circumstances. Examples of these types of exemptions include: exemptions for dependents, medical and dental expenses, state, local and foreign taxes paid, qualified tuition and fees, charitable donations, and military combat pay, among others. Also, certain income, such as income made from municipal bonds, counts as exempted income.
In order to properly claim exemptions, taxpayers should use the appropriate forms and complete the necessary paperwork to document their exemptions. Tax forms such as Form 1040, Form W-2, as well as other state and local tax forms, may need to be updated in order to reflect the deductions.
Overall, exemptions are an important way to lower taxable income and thus reduce the amount of taxes owed by taxpayers. For those that qualify, claiming exemptions can add up and result in hundreds or even thousands of dollars worth of tax savings. It is always wise to consult a qualified tax preparer or accountant to ensure that the correct amount of exemptions are claimed and to ensure that the taxpayer is not over or under-paying taxes.