Tax Analysts provides news, analysis, and commentary on tax-related topics, including on exemptions and deductions.
Exemptions and deductions reduce the amount of taxes owed by a taxpayer by reducing taxable income. Examples of exemptions include the personal exemption and exemptions for dependents.
Deductions can be characterized as either above-the-line, which are used to arrive at adjusted gross income, or below-the-line, which are subtracted from a taxpayer’s AGI. Above-the-line deductions are generally more valuable to a taxpayer. Deductions can include either the standard deduction or itemized deductions. Some deductions include those for capital losses, medical and dental expenses, health savings accounts, deductible taxes, including real estate, sales, and property taxes, business use of home or car, business travel expenses, business entertainment expenses, employee business expenses, tuition and fees deduction, work-related educational expenses, student loan interest payments under section 221, section 170 charitable deductions, home mortgage interest deduction, gambling losses, and contributions to retirement accounts under an IRA. Other examples of deductions, as related to business, includes the business depreciation deduction, the bad debt deduction, the section 199 domestic production activities deduction and section 179 election to expense some depreciable business assets. Section 163(j) establishes limitations on interest deduction for some corporate indebtedness.
Recurring issues and controversies in this area include the renewal of some tax extenders, which is the subject of much debate in Congress ("House Approves Expanded Small Business Expensing") and whether to narrow the number of deductions available in favor of broadening the tax base and lowering the statutory rate with the implementation of tax reform ("Camp Draft's Choices on Extenders Could Shape Ways and Means Discussions").
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