tax deduction

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Tax Deduction

Definition: A "tax deduction" is an amount of money that you can subtract from your total income when calculating how much tax you owe. This means you pay taxes on a smaller amount of money, which can help you save money.

How It Works

When you earn money, the government usually takes a percentage of it as tax. However, certain expenses (like donations to charities, mortgage interest, or medical costs) can be deducted from your total income. This means if you make $50,000 and have $10,000 in deductions, you only pay tax on $40,000.

Example:

If you earn $50,000 in a year and you have $5,000 in tax deductions, you only have to pay tax on $45,000. This can lower the amount of tax you need to pay.

Advanced Usage:

Tax deductions can vary based on your country, state, or specific tax laws. For instance, some tax systems allow for standard deductions (a fixed amount) or itemized deductions (specific expenses). Understanding which deductions you qualify for can significantly affect your tax bill.

Word Variants:

• Tax Deductible (adjective): This describes expenses that you can deduct from your taxable income. For example, "The cost of my new computer is tax deductible."
• Taxable (adjective): This refers to income or items that are subject to tax. For example, "My salary is taxable."

Different Meaning:

While "tax deduction" refers specifically to the reduction of taxable income, "deduction" in a general sense can also mean a conclusion or decision reached after considering the facts. For example, “My deduction from the evidence is that he is guilty.”

Synonyms:

• Tax relief
• Tax write-off

Idioms and Phrasal Verbs:

• Write off: This is a phrasal verb that means to cancel or dismiss a debt or expense for tax purposes. Example: "I can write off my business expenses on my tax return."

Summary:

A tax deduction helps reduce the amount of money you pay in taxes by lowering your taxable income. It’s important for managing your finances and understanding how tax laws apply to you.

Academic

Noun

1. a reduction in the gross amount on which a tax is calculated; reduces taxes by the percentage fixed for the taxpayer's income bracket

Synonyms

• tax write-off
• deduction