exemption

ex·emp·tion   (ĭg-zěmp'shən)    n.   The act or an instance of exempting. The state of being exempt; immunity. One that is exempted, especially an amount of income that is exempted from taxation.

Exemption

A deduction allowed by law to reduce the amount of income that would otherwise be taxed. An exemption is based on a status or circumstance rather than economic standing.

Investopedia Commentary

There are two types of exemptions: personal and dependency.

An example of an exemption is the reduction in taxes you are granted for the dependent children (under the age of 18) living with you.

Related Links

Traditional IRA Deductibility Limits
Deducting Losses on Your IRA Investments
Five Tips for the Tax-Smart Investor

See also: Deduction, Dependent, Exempt Income, Tax Credit

exemption

An annual deduction permitted a taxpayer and each dependent for use in computing taxable income. An extra exemption is allowed for being blind or for being 65 years of age or older. The size of the annual exemption is altered each year according to the level of inflation. Also called personal exemption.

Main Entry: ex·emp·tion
Pronunciation: ig-'zemp-sh&n
Function: noun
1 : the act of exempting or state of being exempt
2 : one that exempts or is exempted: as a : an amount of income exempted from taxation that may be deducted from adjusted gross income under the tax laws —see also Internal Revenue Code in the IMPORTANT LAWS section —compare DEDUCTION, EXCLUSION, TAX CREDIT

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de·pen·den·cy exemption
/d&-'pen-d&n-sE-/
: an exemption that is allowed for each dependent who qualifies under the tax laws (as sections 151 and 152 of the Internal Revenue Code)
NOTE: Under the federal income tax laws, the dependency exemption is allowed for each dependent whose gross income is less than the exemption or who is a child of the taxpayer and is under 19 or a student under 24.

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per·son·al exemption
: an exemption that is allowed for the taxpayer or for the taxpayer and spouse if filing a joint return b : the right created by federal and state laws to exempt specified types of property from a bankruptcy estate exemptions in the Bankruptcy Code>; also : a type of property that may be claimed as exempt —see also Bankruptcy Code in the IMPORTANT LAWS section c : HOMESTEAD EXEMPTION