What Does It Mean to Be Tax-Exempt or Have Tax-Exempt Income?

What Does It Mean to Be Tax-Exempt? Tax-exempt refers to income or transactions that are free from tax at the federal, state, or local level. The reporting of tax-free items may be on a taxpayer's individual or businesstax return and shown for informational purposes only. The tax-exempt article is not part of any tax calculations. Tax-exempt may also refer to the status of a business or organization which has limits on the amount of income or gifts whicharetaxable. These organizations include religious and charitable institutions.Key TakeawaysTax-exempt status allows a taxpayer to file a return with the IRS that exempts them from paying taxes on any net income or profit.A taxpayer can offset capital gains and avoid taxes on disposed assets, though this often allows a taxpayer to be exempt up to their current or prior losses.Taxpayers who avoid taxes may still be required to pay alternative minimum taxes. Most commonly, organizations gain tax-exempt status by requesting the status from...