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.


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.

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  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 ... Read Full Answer >>
  2. How long do I need to keep income tax records?

    Keep all tax-related records for at least three years. For example, keep your 2015 tax return, filed in early 2016, at the ... Read Full Answer >>
  3. Are estate distributions taxable?

    In general, most estate distributions are not subject to income tax. In some cases, however, a distribution from an estate ... Read Full Answer >>
  4. Are Cafeteria plans taxable?

    Whether the benefits you receive through your employer-sponsored cafeteria plan are taxable depends entirely on which benefits ... Read Full Answer >>
  5. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
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    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>

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