Tax Exemptions – What Types of Tax Exemptions Are Available?
Tax exemption is a way to reduce the amount of tax that you have to pay for something. This can be in the form of complete relief from taxes, reduced rates, or paying the tax only on a part of the item. There are many different types of tax exemptions and it is important to understand each of them to ensure that you understand what is available.
Tax exemptions are generally granted to organizations that provide services to the public. These organizations can be tax-exempt from state sales tax, property tax, and income tax. They also may be exempt from the federal tax. This type of tax exemption is based on the percentage of adjusted gross income that the organization has. For 2020, that amount is 60% of AGI.
Nonprofit organizations can also qualify for tax exemption if they conduct one or more fundraising events during the year. However, these organizations must meet certain conditions set forth in Publication 206, Sales Tax Exemptions For Nonprofit Organizations and Auctioneers. To apply for this exemption, follow the instructions in the Publication.
Tax exemptions are also available to those who work for foreign missions. Some states require vendors to submit additional documents in order to qualify for a tax exemption. For example, some states require that businesses obtain a streamlined sales tax agreement exemption certificate. Fortunately, the OFM compiles relevant state guidance on its website.
Tax exemptions may apply to your business, home, or apartment. Some states offer exemptions for certain types of businesses, including public broadcasting and telecommunication companies. Additionally, many states offer tax holidays, which allow consumers to purchase goods or services without paying taxes. By utilizing the right tax exemption, you can save money on your property taxes.
Tax exemptions may also apply to subdivisions and subsidiary jurisdictions. While not unique to federal systems, they are a common feature of national and state systems. In these cases, the top-tier system can impose restrictions on a lower tier, including tax exemptions. These restrictions may either directly limit the lower jurisdiction’s tax-levying authority or indirectly regulate the tax effects of an exemption at the upper tier.
In addition to property exemptions, some tangible personal property also qualify for sales tax exemption. For instance, food sold in a grocery store is tax-exempt if it is consumed off-site by humans. Similarly, canned tuna is tax-free if it is used for human consumption. Another type of property exemption involves the sale of certain construction materials. These materials must be purchased from vendors who can provide evidence of exemption. These certificates are eight-and-a-half-inch in size and bear the Comptroller’s embossed seal.
Diplomatic tax exemption cards are also issued by the Office of Foreign Missions. These cards are valid for tax exemptions on purchases made in the United States. However, these cards are not transferable and cannot be loaned to other people.