A tax exemption is an exemption to the tax law of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone.

Normally a tax exemption is provided to an individual or tax-exempt organization which falls within a protected class of some kind. Tax exemptions are usually meant to either reduce the tax burden from a particular segment of society in the interests of fairness or to promote some type of economic activity through reducing the tax burden on those organizations or individuals who are involved in that activity.

Typical tax exemption criteria used are age of the individual paying tax, public service which the individual has performed (war veterans), ownership of types of property (homeowners), geographic location of property, income level of the individual paying the tax, or the value of the property being taxed.

In the United States the classic property tax exemption provided homeowners is the homestead exemption. There are many others such as exemptions on income tax (exemptions for dependents or people such as children who are financially dependent on the tax payer).

Tax exemptions have a glorious history as being tools of social and economic change with unintended consequences.

Example of Homestead Exemption

The following text describes the basic homestead exemption for the State of Florida. This text can be found at http://www.myflorida.com/dor/property/exemptions.html and contains a number of additional protected classes such as widows, people over 65, war veterans, and disabled persons.

Generally, initial application for property tax exemption must be made between January 1 and March 1 of the year for which the exemption is sought. Initial application should be made in person at the property appraiser's office.

Every person who has legal or equitable title to real property in the State of Florida and who resides on the property on January 1 and in good faith makes it his or her permanent home is eligible for a homestead exemption. If title is held by the husband alone, a wife may file for him, with his consent, and vice-versa. If property is held by the entireties, one spouse may file as agent for the other.

If filing for the first time, be prepared to answer these questions:

1. In whose name or names was the title to the dwelling recorded as of January 1?

2. What is the street address of the property?

3. How long have you been a legal resident of the State of Florida? (A Declaration of Domicile or Voter's Registration will be proof of date before January 1.)

4. Do you have a Florida license plate on your car and a Florida driver's license?

5. Were you living in the dwelling on January 1?

Further down this same page is a description of the homestead exemption for "Totally and Permanently Disabled Persons" which says:

1. Real estate used and owned as a homestead by a quadriplegic, less any portion used for commercial purposes, is exempt from taxation.

2. Real estate used and owned as a homestead, less any portion used for commercial purposes, by a paraplegic, hemiplegic, or other totally and permanently disabled person, who must use a wheelchair for mobility or who is legally blind, is exempt from taxation.

A person seeking exemption under number 2 above must meet gross income limitations. Gross income includes veterans' and social security benefits. The gross income of all persons residing in the homestead for the prior year cannot exceed $14,500. However, beginning January 1, 1991, the $14,500 limitation will be adjusted annually. The adjustment will be based on the percentage change in the average cost-of-living index of the immediate year compared with the prior year.

If filing for the first time, a certificate of total and permanent disability from two licensed doctors of this state or from the Veterans' Administration is required.

Non-profit organizations

In the United States, tax exempt status is granted to non-profit organizations, such as churches and charities by the Internal Revenue Service, for purposes of paying income tax. Conditions depend on the type of entity, and are defined in .

Sales tax

In the United States, organizations which resell goods may be exempt from state sales taxes because the taxes are only applied when the item is sold to the end user.

See also

• Taxation in the United States
• Income tax in the United States
  • Internal Revenue Service
• Taxation in the United Kingdom
• Taxation in Canada
• 527 group

External links

• Helpful Startup Resources on Incorporating and obtaining Tax Exempt Status - Links and Information
• IRS info for charities
• Legal Information for Nonprofit Corporations Legal information on forming and running a nonprofit organization.

Taxation | Taxation in the United States

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