Everything You Need to Know About Tax Exemption | Axiom Tax Resolution Group

Now that you’re out in the real world, your finances are one of the most important things you need to deal with. Besides your monthly income and budget, another thing that demands your attention is your taxes. 

Taxes aren’t a linear thing and there are many things that you need to consider, from your job, how much you make, and more. Depending on your line of work or your business, you may be exempted from taxes. But what does that really mean? Can you also apply for tax exemption?

Seeing that taxes can be a bit complicated, it’s best to speak to a tax resolution specialist to better grasp your tax situation. But to know if you’re exempt from taxes, here’s a quick crash course on what tax-exempt is. Let’s take a look!

What is Tax Exempt?

Tax-exempt refers to your income or transactions that are free from tax at the local, state, or federal level. Usually, tax-free item reporting is done on your individual or business tax return and only presented for informational purposes. Additionally, they are not part of any tax calculation. 

Moreover, tax-exempt also identifies the status of your organization or business, limiting the income, gifts, or donations that are taxable. These organizations include charitable or religious institutions. 

What are the Common Tax-Exempt Earnings?

Tax-exempt frees you from any tax obligation on certain transactions and income. However, you shouldn’t confuse this with tax deduction since a deduction only reduces your tax obligation by lowering your gross income. 

Common tax-exempt earnings are interest earned on municipal bonds issued by the states and cities that raise funds for general operations and projects. When you make interest income on these bonds, the profit is exempt from federal and state taxes. 

Tax-exempt taxpayers will receive an IRS Form 1099-INT to report any investment interest that they’ve earned during the tax year. To report your tax-exempt interest, you’ll find this in box 8 of the 1099 form. Again, please note that the information is not included in the calculation for your personal income taxes. 

Who is Exempt from Taxes?

Besides organizations, some people fall under the criteria of tax exemption. If your income is less than or equal to the standard deduction, what you earn is not taxable. So if you earn less than $12,000 a year, you don’t have to file a tax return. 

Other types of income that are exempt from taxes include social security and welfare benefits, some life insurance proceeds, and Armed Forces family allotments. Keep in mind that at the beginning of the 2018 tax year, personal and dependent exemptions are no longer considered in your federal tax return. 

How Do I Apply for Tax Exemption?

Once your organization or nonprofit is incorporated, you can apply for tax exemption by filing IRS Form 1023 with the IRS within 27 months after your incorporation. This allows your nonprofit to be recognized as a tax-exempt entity from the date of its creation. 

For an organization seeking tax exemption, you must have an Employer Identification Number and provide a detailed explanation of your nonprofit and its primary activities. 

As tax exemption requirements involve a lot of legal work and issues, it’s best to speak to tax professionals and tax resolutions specialists to ensure that your organization meets all the requirements for tax exemption. 

The Bottom Line: It Pays to Know More About Tax Exemption

Knowing that you qualify for tax exemption can relieve you from a plethora of tax issues that you may encounter in the future. Of course, you need to ensure you handle all the requirements and meet deadlines to ensure that your organization is granted tax exemption. 

Working with a tax resolution specialist can help you deal with your tax woes and ensure that your organization is ready to apply for tax exemption.

How Can We Help You?

Are you looking for a tax resolution specialist to work with? If so, check out Axiom Tax Resolution Group. 

We are tax resolution specialists that help individuals find permanent solutions to their tax problems with the IRS. There’s no point in ignoring your IRS tax problems; let’s work together and eliminate this costly mistake.

Give us a call at 844-8-TAX-PRO today!