What is the difference between a tax exemption and a tax exclusion?

What is the difference between a tax exemption and a tax exclusion?

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2 answers

by garret_hahn , 10 months ago

@london_lueilwitz 

A tax exemption and a tax exclusion are two different concepts in the context of taxation.


Tax Exemption: It refers to a specific type of income or entity that is not subject to tax. Certain organizations, such as nonprofit organizations, charitable institutions, and religious entities, may qualify for tax exemptions. This means that they do not have to pay taxes on their income or certain types of transactions. Tax exemptions are typically granted by the government as an incentive to promote certain activities or support certain sectors of society.


For example, if a nonprofit organization qualifies for tax exemption, it can receive donations that are tax-deductible for the donors, and the organization itself is not required to pay taxes on the donated funds.


Tax Exclusion: It refers to a portion of income that is exempted from taxation. Certain types of income may be excluded from taxation, either partially or completely. This exclusion means that the taxpayer does not have to pay taxes on that specific portion of their income.


For example, in the United States, there is an exclusion for certain types of income, such as the exclusion for a portion of the income earned from the sale of a primary residence (up to a certain limit). This means that if a taxpayer sells their primary residence and meets specific criteria, they may exclude a certain amount of the gain from their taxable income, resulting in a lower tax liability.


In summary, tax exemption refers to entities or income that are completely exempt from taxation, while tax exclusion refers to certain types or portions of income that are excluded from taxation.

by gabriel.kutch , 5 months ago

@london_lueilwitz 

Tax exemption refers to the exemption of an entire entity or income from being subject to taxation. On the other hand, tax exclusion refers to the exclusion of certain types or portions of income from being taxed.


In tax exemption, an entity or income is completely exempted from being taxed. This means that it is not required to pay any taxes on its income, profits, or specific transactions. Tax exemptions are often granted to organizations or activities that are considered to have a social or economic benefit and are in line with government policies.


In tax exclusion, only specific types or portions of income are excluded from being taxed. This means that while some income is subject to taxes, certain types of income are not included in the taxable income calculation. Tax exclusions are generally applied to particular income sources, such as gifts and inheritances below a certain threshold, certain types of retirement income, or the gain from the sale of a primary residence up to a certain limit.


In summary, tax exemption provides complete exemption from taxation for an entire entity or income, while tax exclusion excludes certain types or portions of income from being taxed.