Is It Tax Exempt?

By: Staff

4 Min Quiz

A gift of $12,000 to your daughter to buy a designer prom dress?

Current tax law says cash gifts to your child are exempt from taxation as long as the gift is under $13,000 -- regardless of how your kids end up spending the money. Gifts to a spouse are also tax exempt, as well as paying someone else's tuition or medical payments. So be generous -- but not too generous.

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A business for disposing of human remains?

Owners of a cemetery company or corporation can usually gain tax-exempt status. Whether the bodies are buried or cremated has no effect on the ruling. What's important is that disposing of human bodies is the company's sole purpose. Operating a mortuary isn't allowed. But a company can sell gravestones and flowers as long as the profits from the sale go directly to maintaining the cemetery.

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A trip to Egypt with your college alumni association?

In this case, it depends on how closely the trip relates to the alumni association's mission. If the purpose of the trip is to promote the college or university, or to educate people about the institution, it may be tax exempt. If it's just a recreational trip for people who happen to be alumni, it probably won't be, no matter how many archaeology professors come along as tour guides.

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A rodeo?

In some cases, a nonprofit association can claim a tax exemption for holding a rodeo. But don't put on your cowboy boots just yet. Only a rodeo that a group holds for the purpose of educating people about agricultural practices will qualify. The same goes for horse racing: Only horse racing conducted as part of an agricultural fair is tax exempt.

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A Siamese cat appreciation society?

Hobby groups like a gardening club, chess club, or -- yes -- a group of feline fanatics can qualify for tax exemption as long as they meet the IRS requirements. These include being supported mainly by membership dues, not providing goods or services for the public, and maintaining a limited number of members who meet in person regularly. Hobby groups also must not discriminate based on race, color or religion.

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An employment agency?

While an employment agency could argue it has a benevolent mission -- finding people jobs -- it's not tax exempt. An employment agency is a business conducted for profit. Even if the job seeker isn't paying the agency for its services, the employers working with the agency probably are. And that means profit.

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The NFL?

The IRS allows a tax exemption for professional football leagues, including the National Football League. Yes, the league makes billions of dollars a year, and some people find its nonprofit, tax-exempt status unfair. But for now, the NFL continues to score big reductions in its tax burden.

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A Christian social club?

To gain and maintain tax-exempt status, social clubs must not discriminate on the basis of race or color. However, religion is a different story. If the main purpose of the club is religious, a club may restrict its membership to people who practice that religion.

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A lobbying group?

Any organization that is primarily devoted to lobbying (influencing legislation) will be denied tax-exempt status. Under certain sections of the tax code, an organization may be involved in political campaigns as long as this is not the group's primary purpose. It's a matter of degree, and you may need a tax expert to help you determine how much lobbying is too much.

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A prize you won in a raffle?

The tax code stipulates that all gambling winnings are taxable. This includes winnings at casinos, horse races and lotteries as well. Think of the tax on your winnings as the cloud that goes along with the silver lining.

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About This Quiz

The rules governing tax exemption in the United States are numerous and diverse. It can be a fine line between legally reducing your tax burden and playing fast and loose with the law. Test your knowledge of exemptions in this quiz.

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