Tax Exempt

DEFINITION of 'Tax Exempt'

To be free from, or not subject to, taxation by regulators or government entities. A tax exempt entity can be excused from a single or multiple taxation laws. Governments are often trying to encourage investment when exempting taxation.

BREAKING DOWN 'Tax Exempt'

Certain securities or investor groups can be referred to as tax exempt. For example, the interest earned from municipal bonds is exempt from federal or state taxation. Many pension plans and income trusts are also designed to be tax exempt at the corporate level.

Other forms of tax exempt entities include, but are not limited to, churches, religious organizations, amateur sports leagues and charities that try to provide relief for the poor and underprivileged.

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