Understanding Deductions Basics
Deductions reduce taxable income, not directly tax owed. They're categorized into standard or itemized. Choosing between them depends on which lowers tax liability more.
Standard Deduction Explained
The standard deduction is a flat amount subtracted from income, varying by filing status. Adjusted yearly for inflation, it simplifies filing for many taxpayers.
Itemizing Deductions Strategically
Itemized deductions require meticulous record-keeping. They can exceed standard deductions if you have high medical expenses, mortgage interest, or charitable contributions.
Uncommon Deductible Expenses
Surprisingly, theft losses, gambling losses to the extent of gambling winnings, and certain hobby expenses can be deducted under specific circumstances.
Deductions' Economic Impact
Deductions can influence behavior. For example, the mortgage interest deduction encourages home ownership, while charitable deduction supports non-profit organizations.Strange State Tax Breaks
In Hawaii, you can deduct up to $3,000 in expenses incurred for maintaining a tree on your property.
What do deductions reduce?
Taxable income, not tax owed.
Tax owed, not taxable income.
Both tax owed and taxable income.
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