What are tax exemptions?
Tax exemptions are a type of tax break that reduces the amount of income that is subject to taxation.
For example, if you earn $50,000 per year and are eligible for a $5,000 tax exemption, you will only be taxed on $45,000 of your income.
Tax exemptions can be claimed for a variety of reasons, such as having dependents, being a homeowner, or making charitable donations.
How do tax exemptions differ from tax deductions?
While tax exemptions reduce the amount of income that is subject to taxation, tax deductions reduce the amount of income that is actually taxed.
For example, if you earn $50,000 per year and are eligible for a $5,000 tax deduction, you will be taxed on $45,000 of your income.
Tax deductions can be claimed for a variety of reasons, such as making contributions to a retirement account or paying mortgage interest.
Are tax exemptions still available under current tax laws?
The Tax Cuts and Jobs Act of 2017 eliminated the personal exemption, which was a type of tax exemption that taxpayers could claim for themselves and their dependents.
However, some tax exemptions still exist, such as those for charitable donations and certain business expenses.
Can tax exemptions be claimed on state and local taxes?
Some states and localities offer tax exemptions for certain types of income or expenses.
For example, some states offer tax exemptions for income earned from certain types of investments, such as municipal bonds.
Additionally, some states and localities offer tax exemptions for property taxes, sales taxes, or other types of taxes.
Nick Simpson
Founder @ WorkMade
I started working for myself at 9. My first tax bill showed up at 14. I didn’t understand it, and nobody around me could really explain it. If you’ve been there, you get it. Twenty years later, after creative directing for brands in New York and buying and selling a few companies, I kept seeing the same thing: smart, talented people losing money to a system that wasn’t built for how they work. That’s why I built WorkMade. Not to make taxes “easier to understand” but to make them disappear into the background, so you can get on with your life.