Identification

• Claiming a dependent lowers your tax bill because you can claim an exemption for each one. In 2011, the dependency exemption was $3,700 and is an adjustment to your taxable income. The exemption reduces your taxable income before electing to itemizing your return or take the standard deduction, which can qualify you for other tax write-offs.
  
  

Considerations

• If you can claim a dependent, you may be able to take a credit or deduction related to the individual. For instance, if you just had a child, you get to take an exemption and may qualify for a larger earned income tax credit (EITC). In 2010, a taxpayer with no dependents could qualify for an EITC worth up to $457 with a maximum income of $13,460, but having a dependent gives you a maximum EITC of $3,050, and you could make up to $35,535.
  
  

Qualifying Dependent

• You cannot claim just anyone as a dependent. If the dependent is a child, you can automatically claim him if he is under the age of 19, or under 24 if he is enrolled in school at least half-time and you pay for more than half of his expenses. A nonrelative or person who does not qualify as a child can still be your dependent. For example, anyone who lives with you for half the year, makes less than the value of the personal exemption, depends on you for the majority of his support and does not file a joint return likely qualifies as a dependent.
  
  

Warning

• Claiming multiple exemptions increases the chance of incurring the AMT. The AMT is a parallel tax system created in 1969 because 155 high-earning taxpayers owed nothing to the IRS by using several tax deductions. In general, if your deductions and exemptions exceed the value of the AMT exemption, you probably have to pay the AMT, which eliminates several deductions and most personal exemptions. The AMT system is so complex that most people need tax software to figure how much they might owe under the tax, according to Kelly Erb of DailyFinance.