What is a tax exemption?

A tax exemption refers to a specific amount of income that is not subject to tax, allowing individuals or entities to reduce their taxable income significantly. In the context of option B, tax exemptions often apply to taxpayers based on specific criteria, such as the number of dependents they have. By claiming exemptions for dependents, individuals can effectively lower their overall tax liability.

For instance, tax exemptions can be granted for each dependent, which encourages taxpayers to support their family members or those under their care. This concept is rooted in tax policy, which aims to alleviate the financial burden on families and promote support for dependents, such as children or elderly individuals.

The other options suggest different tax-related concepts: a percentage deduction from taxable income describes a tax deduction rather than an exemption; claiming expenses related to income also pertains to deductions; and a special allowance for self-employed individuals suggests deductions specific to self-employment rather than a broad exemption. Understanding tax exemptions is crucial for individuals to accurately calculate their tax obligations and optimize their financial planning.