To be free from, or not subject to, taxation by regulators or government entities. A tax exempt entity can be excused from a single or multiple taxation laws. Governments are often trying to encourage investment when exempting taxation. Certain securities or investor groups can be referred to as tax exempt. For example, the interest earned from municipal bonds is exempt from federal or state taxation. Many pension plans and income trusts are also designed to be tax exempt at the corporate level. Other forms of tax exempt entities include, but are not limited to, churches, religious organizations, amateur sports leagues and charities that try to provide relief for the poor and underprivileged.
An illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties. Watch: Tax Avoidance Vs. Tax Evasion There is a difference between tax minimization/avoidance and tax evasion. All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.
Federal tax legislation passed in 1982 that modified some aspects of the Economic Recovery Tax Act of 1981 (ERTA). Both of these pieces of tax legislation took place during the Reagan Presidency. The ERTA was a piece of tax legislation that greatly lowered income tax rates, and all very high rates were given a maximum of 50%. The TEFRA modified aspects of the ERTA which caused concern over potential large budget deficits. TEFRA increased the tax received but not the tax rates. This was done by removing some of the tax breaks businesses received in the ERTA, such as the increase in the amount of accelerated depreciation that a company could deduct.
A country that offers individuals and businesses little or no tax liability. There are several countries in the Caribbean that are considered tax havens.
Selling securities at a loss to offset a capital gains tax liability. Tax gain/loss harvesting is typically used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income tax rates than long-term capital gains. Also known as "tax-loss selling". For many investors, tax gain/loss harvesting is the single most important tool for reducing taxes now and in the future. If properly applied, it can save you taxes and help you diversify your portfolio in ways you may not have considered. Although it can't restore your losses, it can certainly soften the blow. For example, a loss in the value of Security A could be sold to offset the increase in value of Security B, thus eliminating the capital gains tax liability of Security B.
Tax free refers to certain types of goods and/or financial products (such as municipal bonds) that are not taxed and with earnings that are not taxed. The tax free status of these goods and/or funds may incentivize individuals and business entities to increase spending or investing, resulting in economic stimulus. Governments will often provide a tax break to investors purchasing government bonds to ensure that enough funding will be available for expenditure projects. Tax free purchases and investments do not incur the typical tax consequence of other purchases and investments. Tax Free Weekends occur in many states where, once or twice a year, store purchases are not taxed, thereby reducing the overall cost to the consumer. Frequently these Tax Free Weekends occur before school starts in the Fall to incentivize spending on school supplies, clothes, computers, calculators etc. Tax free investments such as tax-free municipal bonds (munis) allow investors to earn interest tax free.
The day that the average American has earned enough money (in theory) to pay off his or her total tax obligations for the year. The calculation used to determine this date assumes that everyone in the nation works for eight hours a day beginning January 1, and that every dollar earned is not spent. The Tax Foundation calculates Tax Freedom Day and also publishes a short report that summarizes trends relating to this measure. In 2008, Tax Freedom Day was calculated as April 23, which means that it took Americans 113 days of work to pay their tax obligations. Tax Freedom Day is a useful indicator for gauging the impact of taxes each year. The calculation includes all taxes incurred, including income tax, federal tax, state tax, medicare and excise taxes. Examination of the trends related to Tax Freedom Day illustrates how changes in tax law, government monetary policy, and even World War I and II have affected when Tax Freedom Day will fall.
Tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability. Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Examples of tax fraud include claiming false deductions; claiming personal expenses as business expenses; and not reporting income. edit Tax fraud involves the deliberate misrepresentation or omission of data on a tax return. In the United States, taxpayers are bound by a known legal duty to voluntarily file a tax return and to pay the correct amount of income, employment and excise taxes. Failure to do so by falsifying or withholding information is against the law and constitutes tax fraud. Tax fraud is investigated by the Internal Revenue Service Criminal Investigation (CI) unit.
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