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What to Know About Tax Exemptions

What to Know About Tax Exemptions

November 30
00:00 -0001

What to Know About Tax Exemptions

There are some individuals and businesses that may be tax exempt. For example, a member of the clergy may be exempt from paying taxes. On the same token, many Churches are tax exempt, as long as they meet certain criteria, which is determined by each jurisdiction. In addition, certain types of personal income are tax exempt. The Federal government has very concrete and specific guidelines as to tax exemptions. Each state makes specific and unique determinations regarding tax exemptions, on a state by state basis.
For example, retired or injured military personnel may be exempt from paying income tax in certain situations. Income that is compensation for an event, such as a lawsuit, may be exempt under certain circumstance. In some jurisdictions, businesses that move to a certain area, enjoy certain tax exemptions. Generally, areas that are experience economic difficulties, will utilize tax exemptions to encourage businesses to move to the area. Businesses in turn, provide jobs for local citizens that would otherwise be unable to find employment. 
There are also tax exemptions based on the size of a family, or number of allowable dependents. For example, the average American family has two children, they can take two deductions based on expenses associated with those children. An average amount of an individuals income is assumed to have been used to support each dependent and it is exempt. Each individual tax payer is also entitled to take a tax exemption for themselves, as long as no one else uses them as a tax exemption. For example, an adult child that is ill, may be cared for by parents. 
The parents would like take a tax exemption for that child, on their taxes. That is perfectly legal as long as no one else takes that person as an exemption, including the child themselves. In other words, a person cannot claim themselves as tax exempt, if another person as used them as a tax exemption.The amount of dependents used as a tax exemption, can greatly effect a family’s income tax responsibility. In order to utilize an independent towards a tax exemption, the dependent must live with the person that is claiming them as a dependent.
Tax exemptions can be utilized in several ways. Individuals and certain institutions, may be completely exempt from taxes. For example, churches and other non profits, are tax exempt. There are also certain factors that make a portion of income tax exempt. The number of dependants claimed by a tax payer, allows the amount of their income that is tax exempt to increase, with each dependent claimed. There are also many cases where certain portions of income is tax exempt, but factors regarding those scenarios, must match tax laws exactly, in order to be legitimately exempt.
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