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 >>
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 To Do If You Lost Your W-2

    There's no need to panic if you don't have your Form W-2 to file taxes, there are easy ways to gain access to the missing form or file without it.
  4. Taxes

    How To Use Your IRA As A Last-Minute Tax Deduction

    While some people are stressing over their taxes, there is a big advantage to delaying the process: You can maximize your 2014 contributions to your IRA.
  5. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  6. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  7. Taxes

    The First Thing You Should Do With Your Tax Refund

    Nobody likes to pay taxes, but everyone loves to get a tax refund. When the check arrives in the mail, it's hard to resist spending it on some indulgence.
  8. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  9. Taxes

    What is the Effective Tax Rate?

    The effective tax rate is the average rate at which an individual or corporation is taxed per year.
  10. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center