How to Know If You Are Tax Exempt
What Does it Mean to Be Tax Exempt?
Good question. Most people have gone their entire lives filing annual taxes and may have no clue what it means to be tax exempt. This is not a thing to be ashamed of as most people hand their W2s over to a tax preparer to process it and wash their hands of the whole thing! At any rate, it is important to at least have some knowledge of certain terms regarding your taxes.
Being tax exempt is something every taxpayer should wants as it reduces the taxable dollar amount that one may owe. There are many ways one can qualify for tax exemptions. Let’s take a look a few of them now:
To qualify for a personal exemption, you must either be the Head of Household or make sure that no one is claiming you as a dependent. Personal exemptions are reportedly a fixed amount of $3,950, but can change at the IRS’s discretion.
Pensions, Medical, Dental, & 401K Plans
Another way to make some of your income tax exempt is by taking advantage of the benefits that your job may offer. Pensions, medical, dental and 401K Plans are all taken out of your gross income before taxes. What this means for you is that it reduces where you would rank in the tax bracket, and consequently, the amount that you have to report as gross income, reducing the overall net. For the more money one earns, the more taxes that household will have to pay.
There are some discrepancies with some of these advantages. For instance, the pensions and 401K savings only delay what you owe to the IRS. Since this is money that you haven’t physically received, it is not recorded as taxable income. However, the minute those funds are dispersed in your care is the moment that the IRS considers that part of your gross income.
Charitable and/or Religious Organizations
The IRS will give tax breaks to organizations they believe are providing a service to the community. Charitable and religious organizations usually file to qualify as a 501c 3 non-profit organizations that make them exempt from paying any taxes. This is especially advantageous for those who are operating them. Additionally, any taxpayer who donates to such organizations qualifies to have whatever amount of money they gave as a tax-exempt charitable contribution.
If you have children or have taken care of someone, providing more than half of their income, this person qualifies as a dependent. Each dependent claimed qualifies for an approximate $3,800 tax-exemption respectively as this amount can also change each year. To learn about dependents, visit the IRS website.
Property tax as well as state and local counties provide tax exemptions. Each state and local government has their own tax laws. Visit your state and county website or the county city building to learn what kind of tax exemptions they may offer.
What Else Would You Like to Know?
Success Tax Relief provides our clients with 30 years of experience working with accountants, tax lawyers, consultants and other professionals in the business. If you are interested in educating yourself more about helpful tax tips for your next annual filing, call us at 877-825-1179, or contact us online.