Tax exempt

Also found in: Dictionary, Thesaurus, Medical, Legal, Acronyms, Encyclopedia.

Tax Exempt

Describing income or organization that is not subject to taxation. Examples of tax exempt organizations include religious groups and charities. Additionally, certain income an individual or corporation derives may be tax exempt. For example, coupons from a municipal bond are tax exempt at the federal level. See also: Tax credit, tax deduction.

Tax exempt.

Some investments are tax exempt, which means you don't have to pay income tax on the earnings they produce.

For example, the interest you receive on a municipal bond is generally exempt from federal income tax, and also exempt from state and local income tax if you live in the state where the bond was issued.

However, if you sell the bond before maturity, any capital gain is taxable.

Similarly, dividends on bond mutual funds that invest in municipal bonds are exempt from federal income tax. And for residents of the issuing state for single-state funds, the dividends are also exempt from state and local taxes.

Capital gains on these funds are never tax exempt.

Earnings in a Roth IRA are tax exempt when you withdraw them, provided your account has been open for five years or more and you're at least 59 1/2 years old. And earnings in 529 college savings plans and Coverdell education savings accounts (ESAs) are also tax exempt if the money is used to pay qualified education expenses.

When an organization such as a religious, educational, or charitable institution, or other not-for-profit group, is tax exempt, it does not owe tax of any kind to federal, state, and local governments. In addition, you can take an income tax deduction for gifts you make to such organizations.

References in periodicals archive ?
The day-to-day management of Putnam's Tax Exempt Fixed Income funds will not change.
The Tax Exempt Fixed Income funds portfolio members include Paul Drury, Senior Vice President and Tax Exempt Specialist, 15 years of investment experience; Susan A.
Tax exempt entity lease transactions are based upon well-recognized legal principles, followed closely for decades, he noted.
1637) -- recently proposed by Senator Grassley to take effect, retroactively, as of November 18, 2003 -- would impose broad and far reaching limitations on deductions allowable to property leased to or used in connection with the provision of services to state and local governments and other tax exempt entities.
Specifically, Senator Grassley characterizes transactions widely used by tax exempt entities with major financial institutions with words such as ".
This is a case that focuses on the unfair and discriminatory action of the state of Idaho - targeting religious organizations that are legally entitled to tax exempt status for property owned and operated in Idaho," said Stuart J.

Full browser ?