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Calculating Your 2011 Tax Exemptions Correctly

by on April 3, 2012

By Meghan Stewart

Continuing with our week-long tax series to get you ready to file by the April 17th deadline, we’re focusing today’s blog post on personal tax exemptions for your 2011 federal income taxes. A tax exemption is like a deduction, because it reduces the amount of taxable income you have. Less taxable income means less money you have to pay in taxes which means you can likely receive a bigger refund check in your mailbox over the next few weeks.

If you file your taxes with a 1040 form, then tax exemptions are a really good tool to reduce your taxable income. You are allowed to claim one personal tax exemption for you and every dependent you claim, as well as on your spouse if you file jointly—even if you’re the sole income earner in your house. Even if your dependents are income-earners, you can still get the personal tax exemption for each of them, too.

The personal tax exemption for 2011 is $3,700.

So for 1040 filers, you simply add the number of exemptions you receive for you and every member of your household then deduct this amount from your adjusted gross income for big tax savings.

If you’ve filed a 1040 income tax return prior to 2009, you may be familiar with paying attention to phase out limits. A personal exemption phaseout (PEP) was a reduction scale you had to use in your personal exemptions for how much your adjusted gross income exceeded at a certain amount set each year. If in 2009 you earned over $166,800 in adjusted gross income as a single taxpayer, you had to reduce your personal exemption amount on a scale provided by the IRS.

Happily since so many taxpayers were feeling the pinch of the recession, PEPs were suspended so you don’t have to worry about phase out limits, effective until 2013. This may be extended longer if the measure is passed again by the federal government.

A fun history lesson on tax exemptions in the U.S:

Tax exemptions are nothing new—in fact, they started in 1894 with a $4,000 personal tax exemption (yes, that’s the actual number used in 1894, not adjusted for inflation). This was declared unconstitutional the very next year in 1895. Tax exemptions came back to our tax code with the ratification of the 16th Amendment when the modern tax code was basically created. The exemption was $3,000 for single taxpayers and $4,000 for married taxpayers. The personal exemptions for dependents were added in 1917.

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