What is the tax exemption?

The definition of tax exemption refers to interest that is free of federal taxes. The concept of tax exemption is a tax legal term, a deduction allowed by the Government to reduce the amount of income that would be taxed as a general rule. Without the privilege of tax exemption, taxpayers and / or consumers would have to pay for that tax.

Characteristics of the tax exemption

Now that we know what the tax exemption is, it does not hurt that we know its peculiarities and see how these income and tax-free transactions affect the economy:

  • The tax exemption is free from federal taxes, but may not be at the state or local level.
  • Capital gains on investments that are tax-exempt are taxable; that is, only the interest on these investments is exempt from tax.
  • Taxpayers who enjoy some type of tax exemption must report it.
  • On an individual level, you can request a personal tax exemption. This reduces your taxable income just like a deduction would.
  • If you have someone in your charge (children, under 19, students under 24 who study full time ...) or are dependent on someone (for example, your children) you can also claim an exemption for dependents who reduce your obligation to pay taxes.

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