I hear on TV people talking about deductibles when filing taxes. What does that mean? I think on the Simpsons they said having Maggie is a deductible. Deducting what from what? I’m not American, so I don’t follow that system.
Follow-up: I think I understand it a lot more now. The government will set out criteria which will entitle you to pay less tax. It’s your job to notify the tax man at the start/end? of the tax year, so that you pay what’s deemed correct.
In: 8
A deductible is an insurance payment.
You’re referring to a tax deduction. We get child tax credits for each child to offset the additional cost of another family member to care for. It reduces the amount of income taxes owed. Technically, Maggie is a tax credit and not a deduction. A credit is a straight reduction in tax owed, a deduction reduces taxable income so it drops your taxes owed by rate of your marginal tax bracket. A $3000 credit drops taxes by $3000, a $3000 deduction at 22% tax bracket would save $660.
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