Exemption

AAA

DEFINITION of 'Exemption'

A deduction allowed by law to reduce the amount of income that would otherwise be taxed. An exemption is based on a status or circumstance rather than economic standing.

INVESTOPEDIA EXPLAINS 'Exemption'

There are two types of exemptions: personal and dependency.

An example of an exemption is the reduction in taxes you are granted for the dependent children (under the age of 18) living with you.

RELATED TERMS
  1. Generation-Skipping Transfer Tax ...

    A tax incurred when there is a transfer of property by gift or ...
  2. IRS Publication 929: Tax Rules ...

    A document published by the Internal Revenue Service (IRS) that ...
  3. IRS Publication 501

    A document published by the Internal Revenue Service that covers ...
  4. Personal Exemption

    The dollar amount that each individual taxpayer is able to deduct ...
  5. Adoption Credit

    A federal tax credit that may be claimed by federal taxpayers ...
  6. Exempt Income

    Certain types or amounts of income not subject to federal income ...
RELATED FAQS
  1. Is it true that you can sell your home and not pay capital gains tax?

    It is true in most cases. When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based ...
Related Articles
  1. Taxes

    Next Season, File Taxes On Your Own

    Master these fundamentals and you'll be doing your own taxes with minimal stress.
  2. Taxes

    Deducting Losses On Your IRA Investments

    In regular accounts in which taxes are not deferred, losses on investments can be included on your tax return. Find out how.
  3. Taxes

    Which Is Better? Tax Preparer Or Tax Software

    Every taxpayer โ€“ and every year โ€“ is different, so here are four factors to help you decide whether a tax pro or software is best for you.
  4. Taxes

    7 Commonly Overlooked Tax Deductions

    Don't pay more taxes than you have to because you've missed taking legitimate tax deductions. Here are just a few you may have overlooked.
  5. Taxes

    Taxes: H&R Block Vs. TurboTax Vs. Jackson Hewitt

    There are more and more tax services to help ease the pain of filing income taxes. Here's our take on three of the biggest.
  6. Mutual Funds & ETFs

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  7. Taxes

    The Best Free Tax-Prep Software For April 15, 2015

    Filing state taxes online costs money, but many platforms let you file simple federal returns free. Some support more complex filings; others import data.
  8. Taxes

    3 Last-Minute Moves To Lower Your 2014 Tax Bill

    The 2014 tax year may be over, but it's still not too late to find some last-minute deductions. Act now!
  9. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience โ€“ and all the tax benefits you're due.
  10. Taxes

    5 Smart Uses For Your Tax Refund

    Consider using the bulk of your refund to take care of long-term needs, like saving for retirement or college.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center