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Simple English definitions for legal terms
tax-exempt
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A quick definition of tax-exempt:
Tax-exempt means that something is not subject to taxation by law. This can apply to things like charities or certain types of bonds. It can also mean that the interest earned on an investment is not subject to income tax. In simpler terms, tax-exempt means you don't have to pay taxes on it.
A more thorough explanation:
Definition: Tax-exempt means that something is not subject to taxation by law. For example, a tax-exempt charity does not have to pay taxes on the money it receives. Another example is tax-exempt municipal bonds, which means the interest earned on these bonds is not subject to income tax.
Examples:
- A non-profit organization that is recognized as tax-exempt by the IRS does not have to pay taxes on the donations it receives.
- Investing in tax-exempt municipal bonds can be a good way to earn interest without having to pay income tax on that interest.
The examples illustrate that tax-exempt status can apply to different types of entities, such as non-profit organizations and investments. In both cases, the benefit of being tax-exempt is that the entity does not have to pay taxes on certain types of income, which can save them money.