What is a Tax Exemption?
A tax exemption is a reduction or elimination of the taxes normally imposed on individuals and organizations by state and federal governments. In order to be tax-exempt, an organization must meet certain criteria that are specifically defined by the United States Internal Revenue Code (IRC). Many organizations which receive tax exemption under the IRC are charities, churches, and any other organizations which are operated for tax-exempt purposes. A tax exemption is usually provided to an organization which is part of a sector of the economy which the government wants to promote economically. This is certainly the case, for example, with charitable organizations. The government wishes to reduce the tax burden on these types of organizations, based on the premise that doing so will encourage the economic activity of the tax-exempt organization. Tax exemptions can also serve the purpose of reducing the taxes borne by a particular segment of society, in the interest of fairness. Non-profit
A tax exemption is a deduction allowed to a taxpayer because of his or her status (having certain dependents, being blind, or being over 65, etc.). Like deductions, exemptions reduce the amount of income on which you will have to pay taxes. In 2007, the dependent exemption was worth $3,400, meaning that $3,400 of your income will not be subject to income tax. What is a tax credit? A credit is a dollar-for-dollar reduction of tax. (See What credits are available if you claim your child as a dependent?.) When parents are divorced or separated, which parent may claim the children as dependents? The parent with whom the child lives for more than 50% of the time during any tax year, is entitled to claim the child as a dependant exemption for all tax purposes. Each child counts as one exemption. For a child to qualify for exemption purposes, he or she must be: • Under the age of 19 at the end of the year, unless the child is a full-time student or disabled; • Under the age of 24 if a full-ti
