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 ... Read Full Answer >>
  2. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  3. How can I lower my effective tax rate without lowering my income?

    There are lots of ways to lower your effective tax rate, although your individual circumstances determine whether you can ... Read Full Answer >>
  4. Do I need to file an income tax return every year?

    Contrary to popular belief, there are indeed situations where a person does not need to file a tax return every year. For ... Read Full Answer >>
  5. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  6. How can I find out which income tax bracket I am in?

    U.S. federal tax brackets are based on filing status (single, married filing jointly, married filing separately or head of ... Read Full Answer >>
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

    What is Adjusted Gross Income?

    Adjusted gross income (AGI) is a term from the Internal Revenue Code. AGI is used to determine a person’s income taxes due.
  4. Bonds & Fixed Income

    How Are Zero-Coupon Municipal Bonds Taxed?

    What every investor needs to know about taxes and zero-coupon muni bonds.
  5. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  6. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  7. Economics

    Why Working Doesn't Add Up For Many Women

    A type of tax deduction for Japanese stay-at-home wives puts a barrier on women working full time in the country.
  8. Taxes

    Top Tax Issues For High-Net-Worth Individuals

    Wealth brings benefits, but from a tax perspective it creates special challenges. Here are some tax issues to pay attention to.
  9. Home & Auto

    What Are The Tax Advantages Of Buying A Home?

    Don't forget these deductions and credits that homeowners can use to reduce their tax bill.
  10. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center