There are many different types of tax exemptions, but the common factor binding them is that they all either reduce or eliminate your taxes. Most taxpayers are eligible for an exemption that reduces their bill, similar to a deduction. State and federal governments exempt nonprofit organizations, for example, as well as religious organizations.
Here are some examples of some tax exemptions you’ll learn about when working with a tax service in Des Moines, IA.
- Personal exemptions: If you are not a dependent on someone else’s tax return, you claim one exemption. This is a fixed amount that usually increases each year. The exemption will reduce your taxable income, and has fewer restrictions than deductions do. So if you’re married, for example, and you file jointly, both you and your spouse will benefit from an exemption.
- Dependent exemptions: The IRS allows you to take exemptions for all your claimed dependents. Most of the time these dependents will be children who live with you for at least half the year, are under 19 years old (or under 24 if a full-time student) and who don’t provide at least half of their own financial support. Other relatives can be dependents if they live with you, and your parents could be your dependents even if they don’t live with you, depending on the circumstances.
- State and local exemptions: Municipal, county and state governments provide various tax exemptions to businesses as a means of stimulating their local economies. A city might choose to exempt a business from paying local property taxes if it moves its headquarters to a specific area. There are also cities and states that provide sales tax holidays, in which people can come and purchase products without having to pay either local or state sales taxes. Of course, these types of holidays only occur in areas that typically implement a sales tax.
- Tax-exempt organizations: Not just any organization can receive tax-exempt status. There are a number of requirements the IRS lays out to which these organizations must adhere. In general, only organizations that run as nonprofits and offer valuable services to their communities will be able to qualify as tax-exempt organizations. These include charities, religious organizations and performing arts groups, among others. If an organization does receive tax-exempt status, it will not need to pay any federal income tax. It will, however, still be required to maintain accurate, diligent records to keep that tax-exempt status intact. Any donations you make to such an organization will allow you to claim a charitable contribution deduction if you decide to itemize your taxes.
These are the most common exemptions you’ll find in the tax world. For more information about tax exemptions, how they differ from deductions and the other ways in which you can save money on your business taxes in the coming tax season, we encourage you to contact Accounting & Tax Professionals, PLC to learn more about our tax service in Des Moines, IA. We look forward to working with you.