Exemptions reduce your taxable income. Therefore, claiming all eligible dependents helps reduce your tax bill. Three tests apply to each person you consider claiming as a dependent. One of those tests considers the person's citizenship or residency status. The person in question must pass all three tests before you can claim them as a qualified exemption, however.
According to the Internal Revenue Service (IRS), for the 2010 tax year, each exemption you claim reduces your taxable income by $3,650. In addition to exemptions for yourself and your spouse, you may have one or more dependents who qualify as exemptions. If your dependent(s) are filing a tax return for themselves, they may not claim themselves on their own tax return if you claim them as a dependent on your tax return.
Citizenship or Residency Test
You can only claim someone as an exemption if they are either a U.S. citizen, a U.S. national, a U.S. resident, or a resident of either Canada or Mexico, according to IRS Publication 501. If a U.S. citizen or U.S. national legally adopts a child who was not a U.S. citizen, a U.S. national or a U.S. resident alien, the child must have lived with you as a member of your household for all of 2010 for you to claim the adopted child as your dependent on your 2010 tax return. Foreign exchange students placed in your home usually do not qualify as dependents.
If you are a dependent on someone else's return, you may not claim a dependent on your own return. Even if you have a qualifying child or qualifying relative, you still may not claim them as a dependent on your return if you are claimed on someone else's return. If you are filing a joint return and your spouse is a dependent of someone else, you and your spouse may not claim any dependents on your joint return.
Joint Return Test
Generally, you cannot claim a married person as a dependent if he files a joint return. An exception is if a child and the child's spouse live with you and the couple filed a joint return to get their refund. There is one final stipulation for verifying whether they are eligible for you to claim them as dependents. If your child and spouse had filed their taxes separately in 2010 rather than jointly, and owed taxes, you may not claim them as a dependent.
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