WiserAdvisor – Blog

Main Menu

  • Home
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Estate Planning
  • More
    • Personal Finance
    • Portfolio Management
    • Financial Trends/Government

logo

Header Banner

WiserAdvisor – Blog

  • Home
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Estate Planning
  • More
    • Personal Finance
    • Portfolio Management
    • Financial Trends/Government
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
282
0
Share:
Tax-Exempt

Last Modified on November 14, 2019

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

  • Manage-Money
    Personal Finance

    How to Manage Your Money the Right Way

    October 25, 2019
    By WiserAdvisor Insights
  • 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
  • Succession-planning
    Financial Planning

    Succession Planning: Don’t Leave Your Company Without It

    January 9, 2020
    By WiserAdvisor Insights
  • money
    Financial Planning

    8 Investment Mistakes That You Must Steer Clear Of

    October 17, 2019
    By WiserAdvisor Insights
  • Improve Your Finances Significantly
    Financial Planning

    3 Simple Steps to Improve Your Finances Significantly

    May 7, 2020
    By WiserAdvisor Insights

You might be interested

  • Improve Your Finances Significantly
    Financial Planning

    3 Simple Steps to Improve Your Finances Significantly

  • Risk-Tolerance in Portfolio Mangement
    Portfolio Management

    Understanding the Spectrum of Risk Tolerance in Portfolio Management

  • Financial Planning

    Why are stocks recovering as the economy declines?

  • 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
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • financial planning DIY-Checklist

    How to Prepare an Annual Financial Plan – Financial Planning DIY Checklist

    By WiserAdvisor Insights
    June 10, 2019
  • IRAs-Work-401

    How IRAs work? 401k vs IRA

    By WiserAdvisor Insights
    July 4, 2019
  • Retirement-Planning

    Retirement Planning checklist

    By WiserAdvisor Insights
    July 8, 2019
  • Financial-Advisor

    Why and When do you need a Financial Advisor?

    By WiserAdvisor Insights
    July 8, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • monitor your financial advisor

    How to monitor the activities of your Financial Advisor?

    By WiserAdvisor Insights
    July 16, 2019

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

Categories

  • Business Finance (2)
  • Education Planning (22)
  • Estate Planning (16)
  • Financial Advisor Guide (14)
  • Financial Planning (91)
  • Financial Trends/Government (2)
  • Personal Finance (8)
  • Portfolio Management (35)
  • Retirement Healthcare (1)
  • Retirement Planning (65)

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

  • Covid-19-Vaccine

    8 Important Facts A Retiree Should Know About the Covid-19 Vaccine

    By WiserAdvisor Insights
    January 15, 2021
  • Financial-Goals

    How a Financial Advisor Can Help You Define Your Financial Goals

    By William Hayslett
    January 14, 2021
  • Kid's Education

    The Best Approach to Plan for Your Child’s College Education

    By WiserAdvisor Insights
    January 11, 2021
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • financial planning DIY-Checklist

    How to Prepare an Annual Financial Plan – Financial Planning DIY Checklist

    By WiserAdvisor Insights
    June 10, 2019

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 400
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 2019 WiserAdvisor.com. All Rights Reserved.

Add WiserAdvisor - Blog to your Homescreen!

Add