WiserAdvisor – Blog

Main Menu

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
logo
I Want to Take Charge.
HELP ME FIND AND COMPARE TOP VETTED FINANCIAL ADVISORS IN MY AREA.

FINRA/SEC Registered Advisors

  Your Information is Safe and Secure

WiserAdvisor – Blog

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
Financial Planning
Home›Financial Planning›Clearing air around the term “Tax Exempt”

Clearing air around the term “Tax Exempt”

By WiserAdvisor Insights
October 31, 2019
1399
0
Share:
Tax-Exempt

Having to pay huge sums of tax on your hard-earned assets can pinch a little. This is why most people are always on the lookout for ways to evade tax or invest in assets that reduce their tax load. The term ‘tax-exempt’ means to be eligible to not pay income tax to the government. Certain securities, organizations, and even people can qualify to be tax-exempt. But there are often misinterpretations surrounding the topic. Let us cover some common tax-exempt subjects to clear the air around the term.

Individuals exempt from Tax

While it would be a dream come true for most individuals to be tax-exempt, only the following people qualify not to pay income tax:

  • Unmarried citizens under the age of 65 with an income of $12,000 or less per annum. 
  • Unmarried citizens over the age of 65, with an income of 13,600 or less per annum.
  • Married citizens under the age of 65 with an income of $24,000 or less per annum. 
  • Married citizens over the age of 65 with an income of $25,300 or less per annum.

Apart from this, the following people are also tax-exempt:

  • Widowed spouses over the age of 65 who have a dependent child whose yearly income is less than $25,300. 
  • Self-employed citizens who earn less than $400. 
  • A person under the age of 24 who is a full-time student. 
  • A person under the age of 19. 
  • People with permanent disabilities. 
  • War veterans with disabilities. 

Organizations exempt from Tax

Non-profit organizations are also exempt from paying tax to the government. Charitable organizations registered as 501(c)(6), recreational clubs registered as 501(c)(7), and a children’s daycare organization registered as 501(k) are all examples of tax-exempt organizations. 

It is mandatory for a non-profit organization to apply for the 501(c)(3) status to be exempt from paying tax. The Internal Revenue Services (IRS) decides which organizations qualify for being tax-exempt. Even then, not all activities of a non-profit are tax-free. Sometimes non-profit organizations run partner-businesses to fund their operations. In such cases, activities related to the business are not tax-exempt. Individuals can also seek tax-exemption only if they are donating to a charitable organization. 

If you wish to apply for a 501(c)(3) status for your organization, you must pass three tests:

1. Organizational test: The organization must fall into one of the following categories:

  • Education
  • Charity
  • Literary
  • Religious
  • Scientific
  • Testing for public safety
  • Preventing Animal cruelty
  • Preventing cruelty against children
  • Fostering amateur sports competition

2. Political Test: Organizations cannot participate in any political campaigns or spend money on political activities.

3. Asset Test: The organization can only provide compensation to its employees in return for their work. They cannot give other assets or income to individuals or be used as a means to benefit the owners, founders, or employees. 

Tax-exempt securities

Some municipal bonds are also tax-exempt. Income generated in the form of dividends or interest from some of these bonds is exempt from federal, state, and local taxes. Some bonds like the U.S Savings Bond are eligible for federal tax, but exempt from state and local tax. Always remember that state tax policies may differ from one state to another. So, discuss these policies with a financial advisor before you invest your money. 

Tax-exempt interest

The interest income from some investments can be exempt from tax. But keep in mind that it is only the interest earned that is tax-free. Capital gains still qualify for tax. Apart from municipal bonds, interest on a government obligation can also be tax free.

To sum it up

It is important for investors to understand their tax obligations and not be swayed by false or incomplete information. Before you invest your money, make sure you understand the intricacies of tax and clearly determine whether or not you qualify for an exemption. Remember that failing to pay taxes is considered tax fraud. 

Be on top of your investing game. Reach out to financial advisors to understand how you can save tax.

Tags#financialadvisor#financialplanning#wealthmanagement
Previous Article

Financial Tips for a Lifetime

Next Article

7 Common Assumptions About Retirement Planning

0
Shares
  • 0
  • +
  • 0
  • 0
  • 0
  • 0
WiserAdvisor Insights

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

Related articles More from author

  • Financial-Planning-Lessons
    Financial Planning

    Financial Planning Lessons from the 21st Century so Far

    February 14, 2020
    By WiserAdvisor Insights
  • Retirement-Plans
    Retirement Planning

    Simple Habits That Can Bolster Your Retirement Plans

    February 26, 2020
    By WiserAdvisor Insights
  • Manage-Money
    Personal Finance

    How to Manage Your Money the Right Way

    October 25, 2019
    By WiserAdvisor Insights
  • Evidence based portfolio
    Financial Planning

    Everything you need to know about Evidence-based Portfolio

    July 29, 2019
    By WiserAdvisor Insights
  • Financial New Year's Resolutions
    Financial Planning

    6 Financial New Year’s Resolutions for 2023

    January 11, 2023
    By WiserAdvisor Insights
  • Financial Planning
    Financial Planning

    How Impulse Spending Can Get Your Financial Planning off Track

    March 26, 2021
    By WiserAdvisor Insights

You might be interested

  • Financial-gifts-Children
    Education Planning

    8 Best Financial Gifts for Your Children

  • Portfolio-Strategy
    Investment Management

    Why Do You Need to Have a Portfolio Protection Strategy?

  • Certified Financial Planner (CFP)
    Financial Planning

    The Importance of a Certified Financial Planner (CFP) for Your Financial Planning

Don't miss out! Get our Helpful Financial Tips Newsletter

  • Popular Posts

  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • Do's & Don't investment portfolio

    The Dos and Don’ts to Protect your Investment Portfolio in a Bear Market Amid The ...

    By WiserAdvisor Insights
    April 22, 2020
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • Retirement-Planning

    Retirement Planning checklist

    By WiserAdvisor Insights
    July 8, 2019
  • Why investing for goals is the right way of investing

    Why Investing for goals is the right way of Investing?

    By WiserAdvisor Insights
    July 16, 2019
  • Portfolio diversification

    5 Dangers of Over-Diversifying your Portfolio

    By WiserAdvisor Insights
    July 26, 2019
  • Financial Planning for couple

    The Complete Guide on Financial Planning for Couples

    By WiserAdvisor Insights
    August 1, 2019

Categories

  • Business Finance (2)
  • Education Planning (29)
  • Estate Planning (20)
  • Financial Advisor (1)
  • Financial Advisor Guide (30)
  • Financial Planning (121)
  • Investment Management (65)
  • Personal Finance (10)
  • Portfolio Management (1)
  • Retirement (16)
  • Retirement Healthcare (1)
  • Retirement Planning (79)
  • Retirement Plans (1)
  • Uncategorized (2)

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.

WiserAdvisor is America’s oldest and largest independent network of screened financial advisors. We make it easy and convenient for consumers to find and connect with advisors in their area. We have successfully helped over 100,000+ individuals find their best financial advisor since 1998 with no match fees, no commitments, no obligation, and complete confidentiality. WiserAdvisor has been featured in The Washington Post, The Washington Journal, ABC, CBS, Yahoo and has been seen in numerous other leading financial news and information websites.

Follow Us

  • Recent

  • Popular

  • High Net Worth Wealth Management

    7 Wealth Strategies For High-Net-Worth Individuals In 2023

    By WiserAdvisor Insights
    January 27, 2023
  • Financial New Year's Resolutions

    6 Financial New Year’s Resolutions for 2023

    By WiserAdvisor Insights
    January 11, 2023
  • Future Investment Trends 2023

    Key Trends and Concerns for Investors in 2023

    By WiserAdvisor Insights
    January 9, 2023
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • Do's & Don't investment portfolio

    The Dos and Don’ts to Protect your Investment Portfolio in a Bear Market Amid The ...

    By WiserAdvisor Insights
    April 22, 2020

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 700
Fairfax, VA, 22033

Business Hours

8:30 AM – 5:00 PM EST (Monday – Friday)

Email Address

wa.assistance@wiseradvisor.com

Phone Number

(703) 651-2060

Fax Number

(703) 259-4487

  • Privacy Policy
  • Terms & Conditions
© Copyright 2022 WiserAdvisor.com. All Rights Reserved.