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Tax breaks reduce or eliminate taxes for individuals and organizations. To be tax-exempt, organizations must meet criteria defined by the US Internal Revenue Code. Non-profit organizations, including schools and churches, are generally tax-exempt at the federal level. Tax exemptions are granted to promote economic activity or reduce taxes for a particular segment of society. Various types of tax exemption exist, including for-profit businesses and resellers of goods.
A tax break is a reduction or elimination of taxes normally imposed on individuals and organizations by state and federal governments. To be tax-exempt, an organization must meet certain criteria specifically defined by the United States Internal Revenue Code (IRC). Many organizations that receive tax exemption under the IRC are charities, churches, and other organizations that operate for tax-exempt purposes.
Typically, a tax exemption is granted to an organization that is part of a sector of the economy that the government wishes to promote economically. This is certainly the case, for example, with charities. The government wishes to reduce the tax burden on these types of organizations, based on the premise that doing so will encourage the organization’s tax-exempt economic activity. Tax breaks can also serve to reduce taxes for a particular segment of society, in the interest of fairness.
Non-profit organizations are generally tax-exempt at the federal level in the US. This can include schools, churches, charities, unions, and even amateur sports leagues. For these organizations, your tax exemption will depend on a number of factors, such as your sources of income, your purpose, and your activities. State-level tax laws also provide exemptions for many of these same organizations, although the laws vary from place to place. In general, however, they would be exempt from property taxes and state income taxes, as well as sales tax.
Additionally, individuals may receive a tax break for some types of benefits and income. Life insurance benefits, for example, fall under the tax-exempt category, as do combat pay for military personnel and interest earned from investing in municipal bonds. These types of income, as well as several others, are exempt from tax due to how it is received. For-profit businesses also have a tax break available in some cases, especially when they are generally viewed as a valuable service to society or an essential product to the economy. However, these tax breaks are often controversial and are criticized by those who feel this gives tax-exempt businesses an unfair advantage.
Various other types of tax exemption exist to meet the needs of the government and different jurisdictions. For example, some organizations that resell goods, such as telecommunications companies, are often exempt from state sales taxes. At the discretion of local governments, sales that take place on certain days may be exempt from sales tax. This is a common occurrence during holiday periods and after natural disasters, and is used as a positive incentive for consumers to purchase goods.
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