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Learn about tax deductions and their importance.
What Is a Tax Deduction?
A tax deduction is a deduction that lowers a person’s tax liability by lowering his taxable income. Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from his gross income in order to figure out how much tax is owed.
Common Tax Deductions
State sales taxes
Reinvested dividends
Out-of-pocket charitable contributions
Student loan interest paid by Mom and Dad
Moving expense to take first job
State tax you paid last spring
Tax Loss Carry Forward
One additional type of deduction deductions is the deduction for capital losses. A tax loss carry forward is a legal means of rearranging earnings to the benefit of the taxpayer. Individual or business capital losses can be carried forward from previous years. Capital losses of $3,000 are allowed per year. So this means if you lost up to $3,000 one year you can write it off your taxes and won’t have to pay an additional $3,000.
Quiz:
Sources: https://www.investopedia.com/terms/t/tax-deduction.asp
https://quizlet.com/45368212/
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