As a tax expert with extensive experience in tax planning and compliance, I can provide you with a comprehensive understanding of what a personal exemption is on a tax return.
Personal exemptions are a type of tax deduction that reduces the amount of income that is subject to federal income tax. The purpose of personal exemptions is to provide a basic level of tax relief for taxpayers and their dependents. In essence, personal exemptions are a way for the government to acknowledge that each individual has certain living expenses that should not be subject to taxation.

**Key Points to Understand About Personal Exemptions:**


1. Eligibility: To claim a personal exemption, a taxpayer must meet certain criteria. Generally, a taxpayer can claim a personal exemption for themselves, their spouse if filing jointly, and any dependents who meet the definition of a qualifying relative.


2. Dependents: A dependent is someone who relies on the taxpayer for financial support. This can include children, elderly parents, or other relatives who live with the taxpayer and are not self-sufficient.


3. Income Threshold: The amount of the personal exemption is fixed by the IRS and is adjusted periodically for inflation. As of the information provided, the exemption amount was $4,000 per qualifying dependent.


4. Married Couples: For married couples filing jointly, both spouses can claim a personal exemption for themselves, and additional exemptions for any dependents they have.


5. Joint Tax Return: When a married couple files a joint tax return, they can combine their personal exemptions and those of their dependents to reduce their taxable income significantly.


6. Calculation: The total exemption amount is calculated by multiplying the number of exemptions by the exemption amount. For example, a couple with two children could potentially claim a total exemption amount of $16,000.

7.
Income Tax Reduction: Personal exemptions directly reduce a taxpayer's taxable income. This means that for every $1 of exemption, $1 less of the taxpayer's income is subject to federal income tax.

8.
Phase-Out: It's important to note that personal exemptions are subject to phase-out provisions based on the taxpayer's adjusted gross income (AGI). As income increases, the amount of exemptions that can be claimed may be reduced or eliminated.

9.
Tax Planning: Understanding personal exemptions is crucial for effective tax planning. Taxpayers should review their personal and dependent status annually to ensure they are claiming all the exemptions they are entitled to.

10.
Changes in Tax Law: Tax laws are subject to change, and it's essential to stay informed about any updates that may affect personal exemptions. As of the latest tax reform, there have been significant changes to the personal exemption structure.

By understanding these key points, taxpayers can make informed decisions about their personal exemptions and can work with a tax professional to optimize their tax situation.

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This means you can claim a $4,000 exemption on your tax return for each qualifying dependent. For example, a married couple with two children could potentially claim two personal exemptions ($4,000 each) and two dependent exemptions ($4,000 each) on their joint tax return ($16,000 = total exemption amount).Feb 3, 2016read more >>