Every year, millions of Americans patiently wait for weeks to receive all of their necessary tax forms in the mail, dutifully gather them together and prepare their returns, and wistfully contemplate what they could have done with the dollars that went to Uncle Sam and their state governments. But not everyone is subject to this process; there are some groups of people in America who have been exempted from this process under our tax code. There are five main categories of taxpayers that are lucky enough to escape the tax man. (To find out when taxes were started, read The History Of Taxes In The U.S.)

TUTORIAL: Personal Income Tax Guide

1. Not-for-Profit Organizations
Section 501(c)3 of the Internal Revenue Code dictates that any organization that qualifies to be classified under this section is exempt from paying income taxes of any kind. Qualifying organizations include religious, educational and humanitarian entities, such as churches, synagogues, universities, hospitals, the Red Cross, homeless shelters and other groups that seek to improve our society.

2. Foreign Citizens
Those who work or stay in America, but are not citizens or resident aliens, must generally file an income tax return with their country of origin instead of the IRS. This generally applies to employees of foreign companies who come to the U.S. to conduct business.

3. Low-Income Taxpayers
Anyone who does not receive income in any form that exceeds the combined amounts of their personal exemptions and standard deductions is exempt from taxation. Any amount of income received below this amount is tax-free. Those in this category can be grouped into one of three subcategories:

Unprofitable Business Owners
Those who incurred a net loss on their tax returns obviously don't owe any tax, since they have no declarable income. Many taxpayers who start new businesses can find some relief in this fashion, since they were not able to turn a profit in their primary endeavors.

Children and Other Dependents
Those who are claimed as dependents by another taxpayer usually aren't required to pay taxes themselves, because their incomes seldom exceed the combined exemption and deduction threshold.

People with Insufficient Income
Those who were not fortunate enough to generate sufficient income are exempt from taxation. The homeless, the downtrodden and the impoverished who receive less money than the exemption and deduction threshold are not required to pay taxes on the meager incomes they receive.

4. Taxpayers with Many Deductions
Some taxpayers are able to write off most or all of their taxable income with personal deductions. For example, someone who incurs a substantial medical bill may be able to claim this on Schedule A as an unreimbursed medical expense, which can drastically reduce their taxable income, possibly to the point where it falls below the taxable threshold.

5. Taxpayers with Many Dependents
Taxpayers who have several dependents may not owe any tax because of the number of dependency exemptions they claim, plus the child tax credits that they are entitled to. For example, a couple with six children will be able to reduce their taxable income by $29,200 in 2010 (8 x $3,650 (the personal exemption amount for 2010)). Any remaining tax liability will then be reduced by both the child tax credit ($2,000) and the additional child tax credit (amount will vary). But this couple could conceivably earn around $50,000 and not owe any actual tax, depending upon their situation. (For more on how an average person can reduce taxes, check out 10 Most Overlooked Tax Deductions.)

The Bottom Line
Although some taxpayers are automatically exempted from taxation by default, such as 501(c)3 organizations, it is also possible to exempt yourself from taxation by incurring substantial deductions and/or reducing your income accordingly. Although it is not always wise to let your tax tail wag your financial dog, reducing your income below the taxable threshold will always feel good, come tax time. (For help on your taxes, read The Ultimate Tax-Time Checklist.)

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