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Money Q&A: Claiming Tax Exemptions?

Q.

The Nest Q&A How many exemptions should we claim, and how much can we deduct?

A.

Assuming that you're filing together (which you should do as a married couple unless one of you has crazy medical expenses or has defaulted on a loan), you have three choices for filing: zero, one, or two exemptions.

Zero Exemptions

If you have a high combined taxable income (more than $164,550, and are therefore in a 28 percent or higher tax bracket), and have taxable investment income, claim "Married, 0." That means more is getting taken out of your paycheck each month, so you'll owe less money (if at all) to the government come tax time.

One Exemption

If both of you are working, you have minimal investment income, and your combined taxable income is less than $164,550, you each should claim "Married, 1." When you file, you'll likely break even or get a small surplus back.

Two Exemptions

If only one of you is working and your taxable income is less than $164,550, the employed spouse should claim "Married, 2." You'll likely break even or get a small surplus back.

As far as deductions go, the standard deduction for married couples filing jointly is scheduled to be $11,400 for the 2009 tax year. If you're renting and have no other deductions that exceed $11,400, you'll get this deduction next year. But if you're deducting mortgage interest and real estate taxes and they exceed more than $11,400, itemize those deductions on your tax return.

Make sure to check out our interactive tax translator!

Nestpert Philip Camporeale, CPA in New York City

-- The Nest Editors

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