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SMALL BUSINESS
Taking Personal Exemptions
In addition to taking either a standard deduction or itemizing your deductions, the IRS allows you to take a personal exemption. For 2008, each personal exemption is worth $3,500.
You may claim an exemption for yourself and for each dependent. Generally, you may claim at least one exemption for each person in your household.
Similar to itemized deductions, your personal exemption begins to phase out at higher incomes. This phase-out rule for losing your itemized deductions is also sometimes referred to as the "phase out" rule.
For married persons filing a joint return and persons filing as qualifying widow or widower, personal exemptions for 2008 begin to phase out when adjusted gross income (AGI) reaches $239,950. Personal exemptions phase out at the rate of 1% of each $2,500 of additional income, which means they phase out completely when income reaches $362,450. For 2008-2009, the phaseout is 1% and for 2010 the phase-out is eliminated.
For single taxpayers, personal exemptions begin to phase out when adjusted gross income reaches $159,950 in 2008. Personal exemptions phase out at the rate of 1% of each $2,500 of additional income, which means they phase out completely when AGI reaches $282,450. For 2008-2009, the phaseout is 1% and for 2010 the phase-out is eliminated.
For persons filing as head of household, personal exemptions 2008 begin to phase out when AGI reaches $199,950, phasing out completely when income reaches $322,450.
Believe it or not, the Internal Revenue Service doesn't require a return from some people.
Who Has to File a Tax Return?
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For married persons filing a separate return, personal exemptions for 2008 begin to phase out when AGI reaches $119,975, phasing out completely when income reaches $181,225. (For married persons filing separately, personal exemptions phase out at the rate of 1% of each $1,250 of additional income.) For 2008-2009 the phaseout is 1%, and for 2010 the phase-out is eliminated.
To calculate a partial phase-out for a personal exemption, see IRS Pub. 501.
The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually eliminates the phase out rule over five years, beginning in 2006.
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Taxes: Basics
Anyone seeking help with taxes should start with the fundamentals. Here are the basics of taxes.
- Who Must File a Return
- Audits & Penalties
- Taxes on Capital Gains
- Withholding Your Taxes
- Common Tax Credits
- Personal Exemptions
- All About AMT Tax
- Calculate Taxable Income
- Itemizing Deductions
- Filing a Return Online
- 2007 Tax Brackets
- 2008 Tax Brackets
- Standard Deductions
- How to File an Extension
