Exemptions

Definition

Exemptions are specific amounts that taxpayers can subtract from their gross income to reduce their taxable income. They can be claimed for the taxpayer, their spouse, and dependents.

5 Must Know Facts For Your Next Test

1. Each exemption reduces the amount of income that is subject to tax.
2. Personal exemptions apply to the taxpayer and their spouse if filing jointly.
3. Dependent exemptions can be claimed for qualifying children or relatives.
4. The Tax Cuts and Jobs Act of 2017 suspended personal exemptions from 2018 through 2025.
5. Exemptions can significantly impact the amount of taxes owed or refunded.

Review Questions

• What types of exemptions can a taxpayer claim?
• How did the Tax Cuts and Jobs Act of 2017 affect personal exemptions?
• Who qualifies as a dependent for exemption purposes?

Related terms

Deductions: Amounts subtracted from gross income to reduce taxable income, including both standard and itemized deductions.

Tax Credits: Direct reductions in the amount of tax owed, which differ from exemptions and deductions.

Gross Income:

Total income earned before any taxes, deductions, or exemptions are applied.