Tax deduction
Tax Deduction
Tax Deduction (pronunciation: /taks dɪˈdʌkʃ(ə)n/) is a reduction in tax obligation from a taxpayer's gross income. Tax deductions can be the result of a variety of events that the taxpayer experiences over the course of the year.
Etymology
The term "Tax Deduction" is derived from the Latin word 'taxare' meaning 'to assess' and the Latin word 'deductio' meaning 'a leading away'.
Definition
A Tax Deduction is an expense that a taxpayer can subtract from their gross income to reduce the total income that is subject to income tax. It is often used to incentivize certain behaviors or to stimulate economic growth, such as encouraging home ownership or higher education.
Types of Tax Deductions
There are several types of tax deductions, including:
- Standard Deduction: A fixed amount that reduces the income you're taxed on.
- Itemized Deduction: Expenses you can subtract from your adjusted gross income.
- Above-the-Line Deduction: Certain specific expenses, like certain business expenses, that can be deducted directly from your income before adjusted gross income is calculated.
Related Terms
- Tax Credit: A tax credit is a dollar-for-dollar reduction of the income tax you owe.
- Taxable Income: Taxable income is the amount of a person’s gross income that the government deems subject to taxes.
- Adjusted Gross Income (AGI): Adjusted Gross Income is your gross income minus adjustments to income.
External links
- Medical encyclopedia article on Tax deduction
- Wikipedia's article - Tax deduction
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