Tax exemption: Difference between revisions
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<onlyinclude>A '''tax exemption''' reduces the total [[tax]] owed, because a person, or particular source of money is exempt (not counted toward the total).</onlyinclude><ref>Investopedia. "Tax Exempt." [Online], Available: http://www.investopedia.com/terms/t/tax_exempt.asp [Aug 23, 2016].</ref> For example, in many countries low-income earners are exempt from paying [[income tax]] because paying that tax would be very hard on their finances.<ref>R.W. Boadway and H.M. Kitchen. ''Canadian Tax Policy''. Toronto: Canadian Tax Foundation, 1980, pp. 44</ref> Likewise, tax exemptions can be a way of encouraging (or discouraging) particular behaviour, see [[Pigouvian tax]]. | <onlyinclude>A '''tax exemption''' reduces the total [[tax]] owed, because a person, or particular source of money is exempt (not counted toward the total).</onlyinclude><ref>Investopedia. "Tax Exempt." [Online], Available: http://www.investopedia.com/terms/t/tax_exempt.asp [Aug 23, 2016].</ref> For example, in many countries low-income earners are exempt from paying [[income tax]] because paying that tax would be very hard on their finances.<ref>R.W. Boadway and H.M. Kitchen. ''Canadian Tax Policy''. Toronto: Canadian Tax Foundation, 1980, pp. 44</ref> Likewise, tax exemptions can be a way of encouraging (or discouraging) particular behaviour, see [[Pigouvian tax]] and [[fiscal incentive]]. | ||
==Tax Deduction== | ==Tax Deduction== | ||
'''Tax deductions''' reduce the overall amount of income that the government is considers when determining the amount owed in taxes.<ref>Investopedia. "Tax Deduction." [Online], Available: http://www.investopedia.com/terms/t/tax-deduction.asp [Aug 23, 2016].</ref> If a tax payer has a taxable income of $50,000 and they claim a deduction of $5,000 then the amount of taxable income will fall to $45,000. | |||
In the U.S, married couples can claim a "standard" deduction which reduces their tax liability, if the family has dependent children, they can claim additional deductions.<ref>J.B. Taylor. ''Economics''. Boston: Houghton Mifflin Company, 1995, pp. 273.</ref> | In the U.S, married couples can claim a "standard" deduction which reduces their tax liability, if the family has dependent children, they can claim additional deductions.<ref>J.B. Taylor. ''Economics''. Boston: Houghton Mifflin Company, 1995, pp. 273.</ref> | ||
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==References== | ==References== | ||
{{reflist}} | {{reflist}} | ||
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Revision as of 20:03, 10 July 2026
A tax exemption reduces the total tax owed, because a person, or particular source of money is exempt (not counted toward the total).[1] For example, in many countries low-income earners are exempt from paying income tax because paying that tax would be very hard on their finances.[2] Likewise, tax exemptions can be a way of encouraging (or discouraging) particular behaviour, see Pigouvian tax and fiscal incentive.
Tax Deduction
Tax deductions reduce the overall amount of income that the government is considers when determining the amount owed in taxes.[3] If a tax payer has a taxable income of $50,000 and they claim a deduction of $5,000 then the amount of taxable income will fall to $45,000.
In the U.S, married couples can claim a "standard" deduction which reduces their tax liability, if the family has dependent children, they can claim additional deductions.[4]
Governments can offer either exemptions or deductions based on what activities they want people to participate in. In Canada, many religious and other charities are exempt from taxation, this helps to encourage people contributing to charitable work.[5]
See Also
References
- ↑ Investopedia. "Tax Exempt." [Online], Available: http://www.investopedia.com/terms/t/tax_exempt.asp [Aug 23, 2016].
- ↑ R.W. Boadway and H.M. Kitchen. Canadian Tax Policy. Toronto: Canadian Tax Foundation, 1980, pp. 44
- ↑ Investopedia. "Tax Deduction." [Online], Available: http://www.investopedia.com/terms/t/tax-deduction.asp [Aug 23, 2016].
- ↑ J.B. Taylor. Economics. Boston: Houghton Mifflin Company, 1995, pp. 273.
- ↑ Canada Revenue Agency. "Exempt goods and services for charities." [Online], Available: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/txbl/chrts/xmpt/menu-eng.html, Sep. 23, 2016 [Aug 23, 2016].