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Exempt Income

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Exempt Income
Any income that is not subject to taxation. Examples of exempt income in the United States include income from municipal bonds, some retirement contributions, interest paid on mortgages, and the personal exemption, among other things. See also: Earned Income Tax Credit.


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Such deductions should be disallowed or allowed only to the extent they exceed exempt income in any year and are subject to recapture out of exempt income in subsequent years.
The court held that by offsetting or disallowing legitimate deductions where there is no relationship between the disallowed expense and exempt income, California, in effect, indirectly taxed income it could not tax directly.
The new law applies to all of calendar year 2009, allowing refunds of any taxes withheld this year on the now exempt income.
 
 
 
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