What is an exemption?

An exemption is a way for you to deduction an additional amount of money from your gross income, lowering your taxable income and, thereby, lowering the tax you owe. There are two types of exemptions which you can claim - personal exemptions and exemptions for your dependent.

For each exemption you can claim, you are allowed to deduct a specified amount of money from your gross income. For example, for the 2006 tax year, you can deduct $3,300 for each deductible exemption.