Tax deduction
A tax deduction is a way to reduce the amount of income that is subject to a tax. Tax deductions and tax credits both lower the amount of money a person has to pay in taxes.[1] But they do it differently. A tax deduction is subtracted from the gross income of a taxpayer.[2] For example, if a couple had an income of $60,000 for the year, and they had paid $10,000 in interest on their mortgage, their taxable income would be reduced to $50,000. The value of a tax deduction depends on a person's tax rate, which rises with income. A tax credit, by comparison, has the same value for all taxpayers.[3] In the USA, there are hundreds of different tax deductions. Some are only available to taxpayers in certain income brackets. Some are available to businesses in particular industries.[2]
References
- ↑ Elizabeth Rosen. Tax credits vs. tax deductions (28 August 2013)US Tax Center. Retrieved 10 December 2015.
- ↑ 2.0 2.1 Tax DeductionInvestingAnswers, Inc. Retrieved 10 December 2015.
- ↑ Income Tax Issues: What is the difference between tax deductions and tax credits?Urban Institute, Brookings Institution. Retrieved 10 December 2015.
