Financial Word of the Week: Tax Exemptions
To wrap up this tax month, let’s talk about exemptions—special deductions that you can use to lower your taxable income.
Exemptions are a set amount of income that is not subject to income tax. This amount could change each year and could be reduced if your adjusted gross income is above a certain amount. For 2014, you may deduct up to $3,950 for each exemption you claim. You may claim exemptions for yourself, your spouse and any dependents.
Phaseout of Exemptions (2014)
Filing Status Adjusted Gross Income Level That Reduces Exemption Amount
Married Filing Separately $152,525
Head of Household $279,650
Married Filing Jointly $305,050
Qualifying Widow(er) $305,050
For example, if you are married and have two qualifying children, you may be able to claim four exemptions. For 2014, this would equate to an exemption amount of up to $15,800 ($3,950 x 4).
If you can be claimed as a dependent by another taxpayer, then you are not allowed an exemption for yourself on your own tax return, even if the other taxpayer does not actually claim you as a dependent.
A dependent can be either a qualifying child or other qualifying relative, but your spouse can never be considered a dependent. Special rules are used to determine whether someone can be considered a dependent.
For more information on exemptions, refer to IRS Publication 501‡.
*This post is not meant to replace the advice of a tax professional.
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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.