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
Pretty sure you’re thinking of a deduction.
So the way income taxes work is that you pay the government a certain percentage of your *taxable* income. Your taxable income is your income (wages from jobs, income from other sources such as side business, rental income, etc), minus certain **deductions** of which there are many thousands. Some examples include medical expenses over a certain (high) threshold, having a dependent (typically a child), mortgage interest, charitable donations, making energy-efficient improvements to your house, etc.
Basically, it’s a way for the government to incentivize certain behavior by excluding that from your taxable income. Most filers however take the *Standard Deduction* which is a way to simplify your taxes so you don’t need to *Itemize* all of your potential deductions. This amount is $12,950 for single filers and $25,900 for married filers as of 2022. So if you’re single and you have less than $12,950 worth of deductions, you’d take the standard deduction. However some deductions can stack on top of the standard deduction as well.
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