What are Tax Exemptions?

what are my tax exemptions

Updated for Tax Year 2014

OVERVIEW

Tax exemptions come in many forms, but one thing they all have in common is they either reduce or entirely eliminate your obligation to pay tax. Most taxpayers are entitled to an exemption on their tax return that reduces your tax bill in the same way a deduction does. Federal and state governments frequently exempt organizations from income tax entirely when it serves the public, such as with charities and religious organizations.

Personal exemptions

If you are not claimed as a dependent on another taxpayer's return, then you can claim one personal tax exemption. This is a fixed amount that generally increases each year. The exemption reduces your taxable income just like a deduction does, but has fewer restrictions to claiming it. If you are married and file a joint tax return, both you and your spouse each get an exemption.

Dependent exemptions

The IRS allows you to take additional exemptions for each dependent you claim. Frequently, the source of these exemptions are the children who live with you for more than half the year, are under 19 years old (or under 24 if a full-time student) and who don't provide

more than half of their own financial support during the tax year. Some of your relatives can also qualify to be your dependents if they live with you and even your parents who don't.

Tax-exempt organizations

For an organization to receive tax-exempt status, it must satisfy all IRS requirements. Generally, these are organizations that don't operate for profit and provide valuable services to the community such as a charity. If an organization receives tax-exempt status it's not required to pay federal income tax, but must maintain accurate records to keep its status. Donations you make to these organizations usually entitle you to claim a charitable contribution deduction if you itemize.

State and local exemptions

State, county and municipal governments also provide tax exemptions to businesses to stimulate the local economy. For example, a business may be exempt from paying local property taxes if it moves its operations to a particular geographic area. In Massachusetts, the state provides many telecommunication companies that provide cable television, Internet access and public broadcasts of radio and television an exemption from sales tax. Many cities and states also offer sales tax holidays where consumers can purchase goods without paying state or local sales taxes.

Source: turbotax.intuit.com

Category: Taxes

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