Legal Definitions - tax-exempt

Definition: Tax-exempt means that something is not subject to taxation by law. For example, a tax-exempt charity does not have to pay taxes on the money it receives. Another example is tax-exempt municipal bonds, which means the interest earned on these bonds is not subject to income tax.

Examples:

• A non-profit organization that is recognized as tax-exempt by the IRS does not have to pay taxes on the donations it receives.
• Investing in tax-exempt municipal bonds can be a good way to earn interest without having to pay income tax on that interest.

The examples illustrate that tax-exempt status can apply to different types of entities, such as non-profit organizations and investments. In both cases, the benefit of being tax-exempt is that the entity does not have to pay taxes on certain types of income, which can save them money.